“Because we have this freedom to adjust, how will people interpret it?” he said. “This is uncharted territory.”
Once the Fed does decide to calibrate its bond-buying, its challenge will be to communicate that “these are just adjustments and not strong signals about things going forward,” he added.
Williams was among the first to advocate an open-ended approach to quantitative easing, in which officials specify neither an end-date to the program nor an ultimate amount that they intend to buy. The Fed’s previous two rounds of asset purchases were announced with pre-determined durations and total amounts.
The San Francisco Fed chief last week said the Fed could begin slowing the pace of its purchases as early as this summer and end the program late this year, a forecast that he stressed yesterday was contingent on an economy performing as “hoped and planned.”
“I’m seeing very good signs of improvement, and I want to see even more to be convinced,” he said. He’s looking “for a broad set of indicators that give me confidence that the recovery is on a very solid footing,” he said, citing not only the unemployment rate but also measures like private payroll growth, unemployment claims and the rate at which people quit their jobs.
Jobless claims decreased by 23,000 to 340,000 in the week ended May 18, Labor Department figures showed today. Payrolls grew by 165,000 in April and the unemployment rate fell to a four-year low of 7.5 percent, Labor Department figures showed May 3. The Federal Open Market Committee said May 1 that it will keep buying $85 billion in bonds per month, adding that it’s prepared to accelerate or slow those purchases in response to both the labor market and inflation.
While “the more likely scenario” is for a reduction in the pace of bond-buying, “there’s definitely space if appropriate” to buy bonds at a rate even greater than the current $85 billion, Williams said.
The San Francisco district bank head joined policy makers, including the St. Louis Fed’s James Bullard, who have said a recent slowdown in inflation may complicate the Fed’s decision to moderate and end the bond purchases.