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Fed's Williams sees need for QE3 "well into" second half of 2013
Posted to: Micro News
Monday, January 14, 2013 12:14 PM

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(Reuters) - The Federal Reserve will need to continue with its bond-buying program for most of the rest of this year as it tries to push down borrowing costs and an unemployment rate that is still too high, a top Fed official said on Monday.

"The Fed must do what it can to help the economy improve," John Williams, president of the San Francisco Federal Reserve Bank, said in remarks prepared for delivery to the SEMI 2013 Industry Strategy Symposium. "I anticipate that continued purchases of mortgage-backed securities and longer-term Treasury securities will be needed well into the second half of 2013."

Last month, the Fed ramped up asset purchases aimed at spurring growth and pledged to keep interest rates near zero until the unemployment rate drops to 6.5 percent, as long as inflation expectations do not climb above 2.5 percent.

Williams -- who used his vote last year on the Fed's policy-setting panel to support those decisions -- said he sees the U.S. economy growing 2.5 percent this year and a little under 3.5 percent next year. Unemployment, which registered 7.8 percent in December, will likely stay at 7 percent or above through the end of 2014, he said. And with labor costs low, he said he sees inflation likely to come in at 1.5 percent and stay below the Fed's 2 percent goal for the next few years.

Williams' economic forecast shows that he sees the Fed keeping rates near zero into at least 2015, in line with the U.S. central bank's own guidance on low rates.

"We will keep rates low as long as needed to promote recovery and move toward our goals of maximum employment and price stability," Williams said.

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