ROHNERT PARK — San Francisco Federal Reserve President John Williams told a group of hundreds of Sonoma County business leaders Friday the central bank's efforts to push down long-term interest rates could start tapering later this year, citing his forecast for lower unemployment and other improving economic indicators.
National economic growth is expected to be relatively sluggish in the current and next quarters, he said. Yet a lower national unemployment rate -- his office projects it will be below 7.25 percent this year and 6.75 percent next year -- are among the signals that could encourage the Fed to scale back the purchase of tens of billions of dollars in investment securities in an effort to keep interest rates low and spur consumer borrowing.
[caption id="attachment_75913" align="alignright" width="300"] John Williams[/caption]
Dr. Williams quoted Fed Chairman Ben Bernanke's recent statement that the central bank could slow and even cease its $86 billion in monthly securities purchases by the middle of 2014, when unemployment is projected to be around 7 percent.
However, the Fed will continue to pursue a large role in supporting the economic recovery, including the maintaining of its near-zero rate for short-term loans to banks until unemployment drops at least below 6.5 percent.
"Of course, the economy's increased momentum has raised questions about when the Fed will cut back, and eventually end, its asset-purchase program," Dr. Williams said. "So is it time to act? My answer is that it's still too early."
Dr. Williams offered his personal forecast, along with a review of the Fed's actions to stimulate economic growth, at an event organized by the Sonoma County Economic Development Board.
In a question-and-answer session, Dr. Williams said that a recent uptick in interest rates was something of a wake-up call for lenders and markets. While many had pointed to the chairman's remarks for spurring that bump, Dr. Williams said the statements were not any different than the previously announced plans to wind down the Fed's activities as the economy improved.
"Maybe many of them thought that low interest rates would go on forever," he said.