Fed must use all tools, joblessness a 'calamity'

The Federal Reserve will do all it can to support a "notably weak" US economic recovery and bring unemployment down from its "shockingly" high level, a top Fed official said on Tuesday. Although he did not call for any specific new action by the central bank, San Francisco Fed President John Williams provided new economic forecasts that suggest he sees inflation tame enough and growth slow enough that more action would be warranted.
"We at the Fed are doing everything we can to move the economy forward, " Williams said in remarks prepared for delivery to a breakfast for business leaders sponsored by local newspaper The Columbian. "It's vital that the Fed use all the tools at its disposal to achieve its mandated employment and price stability goals." The US central bank has kept interest rates at near zero for more than three years and has signalled it will keep them there through at least mid-2013. It has also bought $2.3 trillion in long-term securities to shore up the economy, actions that Williams said averted a depression.
But Williams painted a picture of continuing economic weakness, forecasting economic growth this year at 2.5 percent and 3 percent next year, a pace he said is too slow to take a big bite out of unemployment. The jobless rate, which registered 8.5 percent in December, will stay above 8 percent well into next year, ending 2014 at around 7 percent, he predicted, calling the situation a "national calamity."
Inflation, he predicted, will fall below 1.5 percent this year and next, short of the Fed's informal goal of 2 percent or a bit below. Taken together, his forecasts suggest he sees room for more action. "The Fed will do its level best to achieve the goals of maximum employment and stable prices," he said.
A depressed housing market is keeping the recovery weak by crimping consumer spending and keeping credit tight, he said, echoing the views of many Fed officials who are increasingly focused on the need to boost the housing sector. Williams has previously said that if there is a need to buy more bonds to boost the recovery, purchasing mortgage-backed securities would be more effective than buying US Treasuries. On Tuesday, he merely called for federal programs to boost the housing market, as the Fed recommended to the US Congress last week.
Williams also warned of the potential threat from Europe's ongoing debt crisis, which he said leaders are working to address. "But, if they fail, all bets are off," he said. The Fed's policy-setting panel next meets January 24-25, and Williams will cast his first vote since becoming president of the Fed's westernmost outpost last year.