Fed’s Williams “Increasingly Hopeful” on Recovery

A top Federal Reserveofficial painted an improving picture of the U.S. economy on Friday but said lofty unemployment, a festering crisis in Europe, and the year-end expiration of stimulative tax cuts make continued easy monetary policy a must.

"Substantial risks remain that could cause the economy to perform worse than I expect," San Francisco Federal Reserve Bank President John Williams said at an annual California bankers' meeting at a Ritz-Carlton coastal resort about an hour's drive from Los Angeles. "Under these circumstances, it's crucial that we continue our highly accommodative monetary policy."

After his speech, he told reporters he's still a member of the "2014 camp," a reference to the Fed's projection that it will need to keep interest rates low through late 2014 to help the recovery.  His remarks came just hours after a U.S. government report showed employers cut back on hiring in April, and that the jobless rate fell to 8.1 percent.  Williams said the data does not change his projection that people will crowd back into the workforce as growth spurs jobs. But, he said, data over the next "many months" could force him to reconsider that view, in turn changing his views on policy.

While "increasingly hopeful that the recovery has entered a phase of self-sustaining growth," Williams expects only a small improvement in the labor market this year, forecasting the unemployment rate at around 8 percent by year's end and "a little below that" next year.

Often labeled a dove because of his strong support for employment-boosting monetary policy measures, Williams has used his vote on the Fed's policy-setting committee this year to support continued monetary easing.