Williams Says Too Early to Act

John C. Williams (FRB-SF) is a non-voting member of the FOMC this year. In a speech today, he said that it is “too early” for the Fed to start moving toward tightening monetary policy. He is concerned that “ongoing fiscal contraction” is slowing the economy, and that inflation may remain below the Fed’s target. He stressed that the Fed’s decision to phase out QE will depend on the new incoming economic data. He repeated the party line that “reducing or even ending our [bond] purchases does not mean the Fed will be tightening monetary policy.” He also noted that regardless of what the Fed decides to do about QE, a “large majority” of FOMC “participants don’t expect the first increase in the federal funds rate to occur until 2015 or later.”

Williams had an interesting insight into the recent decline in inflation: “This partly reflects temporary factors, such as a decline in Medicare reimbursement prices forced by sequestration.”