Fed’s Williams Says Data Show Gradually Improving Job Market

WASHINGTON (Sept 10)  Federal Reserve Bank of San Francisco President John Williams, who has backed record stimulus, said recent economic data signal gradual job market improvement in line with his expectations.

The “latest data” is “consistent with the forecast that I’ve had for the U.S. economy of gradual improvement and doesn’t change my particular views” on policy, Williams said to reporters today after a speech in San Francisco. “We are continuing to get closer to this marker of substantial improvement” in the labor market, said Williams, who doesn’t vote on policy this year.

The U.S. economy added 169,000 jobs in August, less than forecast, and revisions to prior reports subtracted a total of 74,000 jobs to payrolls in the previous two months, the Labor Department said on Sept. 6. Fed policy makers are debating when to begin dialing back their $85 billion in monthly bond purchases aimed at stoking economic growth and combatting unemployment, now at 7.3 percent.

The Federal Open Market Committee, which plans to meet Sept. 17-18, has pledged to press on with asset purchases until the job market shows signs of substantial improvement.

“I still see signs of pretty good, solid increases in jobs in the U.S.,” Williams said to reporters. The FOMC will probably adopt a gradual, “multi-step” plan for tapering bond buying, he said.

Taper Buying

The August jobs data didn’t derail economists’ expectations for the FOMC to taper bond buying by $10 billion at its meeting next week, according to the median response in a Bloomberg survey after the Sept. 6 release of the report.

The yield on 10-year Treasuries closed at 3 percent on Sept. 5, the highest since 2011, on investor speculation the Fed will soon taper. The yield on the benchmark 10-year Treasury note declined 0.04 percentage point to 2.9 percent at 2:08 p.m. in New York. The Standard & Poor’s 500 Index rose 0.9 percent to 1,670.13.

The recent rise in longer-term interest rates stems partly from comments about tapering bond purchases by Fed officials, including Chairman Ben S. Bernanke, which deflated expectations the FOMC will continue its buying indefinitely, Williams said in response to an audience question.

The fading of “froth” in the bond market is “healthy,” he said at the annual National Association for Business Economics conference.

The central bank probably won’t start raising the main interest rate until the second half of 2015 even though unemployment probably will have already declined to 6.5 percent, Williams said to reporters.

The FOMC has pledged to keep the benchmark interest rate at zero at least as long as unemployment exceeds 6.5 percent and the outlook for inflation is no more than 2.5 percent.