San-Fran Fed’s Williams Goes All-In Behind QE3

John Williams, President and CEO of the Federal Reserve Bank of San Francisco, was speaking and presenting his case for the support of quantitative easing at the City Club of San Francisco. While the U.S. remains challenged, Williams believes (or stated) that our economy was on the mend even if the situation in Europe remains a huge drag.

Williams warned about the coming fiscal cliff. He said, “The drag on the economy coming from shrinking government employment and lower spending could turn dramatically worse at the beginning of 2013.” The good news is that Williams said he does not expect that all spending cuts and all tax hikes will actually take place. On this he noted, ”

For example, it’s likely that the Bush tax cuts will be extended temporarily and that some spending cuts will be deferred.  Still, there’s little doubt that a number of austerity measures will hit.  I expect that to slow our economy’s forward progress.”

Williams said he supports the new round of QE3 as the $40 billion purchases per month of mortgage-backed securities is in addition to the Fed’s ongoing balance sheet expansion of longer-term Treasury securities at $45 billion per month.  He said, “In particular, we will continue buying mortgage-backed securities until the job market looks substantially healthier.  We said we might even expand our purchases to include other assets.”

Today’s news should not really be any surprise. Almost all voting and non-voting regional Fed presidents support the QE3 efforts.

FULL SPEECH

JON C. OGG