By Steven K. Beckner
LOS ANGELES (MNI) – New San Francisco Federal Reserve Bank
President John Williams said Wednesday that the U.S. economy is “weak”
— weaker in fact than macroeconomic models imply that it should be.
Williams blamed the slower than normal growth pace largely on
continued weakness in the housing market, but said it would also be
“helpful” if the U.S. fiscal situation were put on a more sustainable,
long-term path.
“The economy is still weak,” Williams said in response to auidence
questions following a speech to Town Hall Los Angeles.
Williams, who took over leadership of the huge 12th Fed district on
March 1 and was making his first speech, said “all macroeconomic models
say the economy should be growing much faster than it is.”
He is predicting 3.25% growth this year, despite the first quarter
slowdown to 1.8%, but said ordinarily a faster pace of growth would be
in order.
“A big drag” on the economy is continued weakness in home
construction and home prices. For one thing, he said falling home prices
have reduced home equity and made it much harder for small business
owners to get credit.
One “positive” area, he said, is increased demand for multi-family
housing.
Williams said that, following the financial crisis and recession,
families, firms and investors became less willing to take risks and make
investments. He said that is starting to change but said it is “very
gradual.”
Another big uncertainty hampering the economy, he said, is large
and unsustainable budget deficits. A “long-term plan” to reduce those
deficits would be “very helpful,” he said.
In other comments, Williams said he is not concerned with the large
holdings of U.S. Treasury securities by China and others and is not
worried that they will dump those holdings or stop buying Treasuries.
He declined to comment on the dollar’s depreciation and its
linkage to monetary policy.
** Market News International **
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