SAN FRANCISCO (Reuters) - A top Federal Reserve policymaker said Monday that he has not yet made up his mind over whether to support a reduction in the Fed’s $85 billion monthly bond purchases next week, when Fed officials meet to discuss options in Washington.
“I am still 100 percent on board with Chairman (Ben) Bernanke’s timeline” for beginning to taper the bond-buying program later this year and ending it next year, San Francisco Federal Reserve Bank President John Williams told reporters after a speech about asset bubbles at the annual meeting of the National Association for Business Economics.
Whether the tapering begins this month or sometime afterward is less important than the fact that the Fed has an overall framework for reducing the program in place, he said.
“I am going to go into that meeting with an open mind and listen to my colleagues and discuss,” Williams said of the September meeting.
Most Wall Street economists expect the Fed to begin reducing the program next week. But a government report Friday showing the U.S. economy did not add as many jobs as expected in August had some investors doubting that expectation.
The Fed has said it will continue to buy assets until the labor market outlook improves substantially.
“I think it’s really important... not to overreact, or put too much weight, on one month’s data, whether strong or weak,” Williams said. “We are continuing to get closer to this marker of substantial improvement which we set last year.”
Regardless of when the Fed will begin to reduce the program, rates will stay low for probably another two years, Williams suggested.
The Fed has said it will keep rates at their current near-zero level at least until the unemployment rate, now at 7.3 percent, drops to 6.5 percent.
Williams said the jobless rate will likely reach that threshold in early 2015, but said the Fed will probably not start raising rates until the second half of 2015.
U.S. fiscal policy and a weak Europe are holding back the U.S. economy, Williams said. But the risk from Europe has waned since last year, he said, and U.S. GDP will likely grow at about a 3 percent pace next year, well above the 2 percent pace that he sees as the economy’s long-term potential and fast enough to continue to bring down the jobless rate.
Reporting by Ann Saphir; Editing by Chizu Nomiyama