Tuesday, April 10, 2012 11:05 am
Head of regional Fed bank favors further openness
By MARTIN CRUTSINGERAP Economics Writer
John Williams, president of the San Francisco Fed, says he would favor requiring each Fed official to spell out his or her forecast for where interest rates are headed. Those forecasts could then be connected to each member's predictions for economic growth, unemployment and inflation.
"It could be useful to connect the dots for the public," Williams said in an interview with The Associated Press.
Currently, the Fed reveals the forecasts of members of its policymaking committee. But it doesn't say which official made each forecast.
Under Ben Bernanke, the Fed has made public openness a priority. Bernanke, for example, is the first chairman to hold quarterly news conferences.
Williams has been a leading proponent of more transparency by the Fed.
"The fact is that this greater openness is genuine, it's positive and it's irreversible," Williams said in an essay released Tuesday as part of the San Francisco Fed's annual report.
"When the public better understands what the Fed is trying to do, uncertainty about its policies is reduced and households and businesses are able to make spending and investment decisions with greater confidence."
Williams said he's open to a proposal by Chicago Fed President Charles Evans to link future Fed moves on interest rates to unemployment and inflation. Under this plan, the Fed wouldn't start raising rates until unemployment fell below a specified level or inflation rose above a certain point.
The Fed's policy committee has said it doesn't plan to raise its benchmark interest rate from a record low near zero until late 2014 at the earliest. But it hasn't linked a rate increase to any specified level of unemployment or inflation.
Williams became president of the San Francisco Fed in March 2011. He succeeded Janet Yellen, who was tapped by President Barack Obama to become vice chairman of the Fed's seven-member board in Washington.
The Fed's policy committee is composed of the board and the 12 regional bank presidents, five of whom have a vote at any one time. This year, Williams has a vote.
In a speech in September in Switzerland, Williams argued that the Fed should start publishing forecasts by members of the policy committee showing where they see the Fed's benchmark rate headed.
The Fed did just that in January. It will release an updated interest rate forecast after its next meeting on April 24-25. That meeting will precede a quarterly news conference by Bernanke.
When the minutes of the Fed's March policy meeting were released last week, investors sold stocks over concern that the Fed seemed less inclined to take further action to stimulate the economy. The minutes showed that officials spent little time discussing the possibility of buying more bonds to try to further drive down long-term rates and promote more borrowing and spending.
Williams said the unemployment report for March, showing weaker job creation, underscored his view that the recovery remains tentative and might need further support.
"If the economy stumbles, then I do feel additional monetary support could be warranted," Williams said. "It is an option that should be on the table."
Many private economists say they think the economy will recover enough from the March lull in hiring that the Fed won't feel compelled to do more to support it.
The Fed's policy committee is split between some, like Williams, who are open to taking further steps to help the economy, and others who worry about raising inflation if the Fed eases credit further.
"My sense is that they are not going any further," said David Jones, chief economist at DMJ Advisors.