–Fed Not Distorting Markets, Asset Purchases Form of Monetary Policy

WASHINGTON (MNI) – San Francisco Federal Reserve Bank President
John Williams said Friday he does not expect the Fed will see the need
to raise rates for another three years based on his assessment of the
economic outlook.

In an interview with CNBC on the sidelines of the Kansas City Fed’s
Jackson Hole symposium, Williams also said the Fed’s asset purchases are
simply a more direct way of conducting monetary policy in an environment
where the federal funds rate is at zero, and are not distorting markets.

Williams said he is concerned “we could be stalling at the current
high level of unemployment,” and “I don’t personally think that we would
be raising rates until probably sometime in mid-2015.”

He noted the Fed’s statements now indicate rates will remain low
until late 2014, but “my own view is that I would be willing to
communicate out further.”

Williams dismissed criticism the Fed’s asset purchase program is
distorting markets.

“I don’t think we’re distorting the market, I think we’re doing
monetary policy by slightly different means,” he said.

“The mechanism has always been that the Fed funds rate movements
would affect other interest rates, so by moving more directly on those
other interest rates I think we’re doing what monetary policy always
does but working in a world where the short-term interest rate is
already at zero,” Williams said.

He said he favors using a more “open ended” policy in announcing
asset purchases, which instead of the current announcement of the lump
sum of planned purchases would “allow us to adjust both the rate at
which we purchase and the amount which we purchase based on economic

“A basic premise of good monetary policy is you adjust policy based
on what is happening in the economy, the outlook, so the open-ended
approach allows you to do that better, I think,” Williams said.

Asked about the Fed’s communications strategy more broadly, he
said, “I would really favor an approach that allowed us to communicate
our lift-off in terms of economic conditions rather than a calendar

He acknowledged this is harder to achieve — and focusing on any
one number would be misleading — and said “it’s hard to come up with
something I think that would be clear. I still hope that can come up
with ways to do that.”

** MNI Washington Bureau: 202-371-2121 **