Pub. 5 2015 Issue 4

Presentation to the Arizona Council on Economic Education November 7, 2015 Last November the Arizona Bankers Association partnered with the Arizona Council on Economic Education (ACEE) to bring John C. Williams, President and CEO, Federal Reserve Bank of San Francisco to Phoenix to keynote the ACEE’s annual gala event. At the time of the speech Mr. Williams was a voting member of the Federal Reserve’s Open Market Committee, which sets the short term interest rate as part of its mission to manage monetary policy for the United States. The appearance came in the context of a year in which Committee members declined to raise rates in seven of their eight meetings. His speech came eleven days after the penultimate meeting of the year in October, and approximately six weeks before the last meeting of the year in December. Below are excerpts from his remarks. For the full speech visit http://www.frbsf . org/our-district/press/presidents-speeches/ williams-speeches/2015/november/arizo- na-council-on-economic-education/ Tempe, Arizona- . . . This is my first public speech since the Federal Open Mar- ket Committee met last week, and it turns out there’s more than the usual amount of interest in what the Fed is doing. . . . THE OUTLOOK . . . The FOMC again decided to hold off on raising interest rates. To my mind, the decision was a close call, in part re- flecting the crosscurrents we’re navigating: On one hand, the U.S. economy continues to grow and is closing in on full employment. On the other, in large part due to develop- ments abroad, inflation has remained lower than we’d like. In any event, we should fully celebrate that the economic expansion is entering its seventh year with good momentum. Real GDP growth has averaged a little over 2 percent over the past five years and the unemployment rate has fallen by nearly a percentage point per year. Consumer spend- ing is powering the economy and has increased more than 3 percent over the past year. Strong fundamen- tals point to continued solid gains going for- ward and business spending is increasing as well. Overall, I see real GDP increasing at about a 2 percent annual rate on aver- age over the second half of 2015 and next year. As for the labor market, we’re on pace to add about 2½ million jobs this year and job openings are plentiful. With the un- employment rate now at 5 percent, we’ve reached my estimate of full employment based on that measure. Given the progress we’ve made and the momentum we’re seeing, we should reach or exceed full em- ployment across a broad set of measures by the end of this year or early next year. Turning to inflation: It is still much lower than I’d like, hovering just above zero for the past year. There are a number of reasons that inflation has remained low despite an economy nearing full employ- ment. First and foremost, the rise of the dollar and the fall in oil prices over the past year have lowered import prices and pushed inflation down. Based on past experience, these effects should prove transitory. Second, the prices for health care have been rising much more slowly than is usual of late. This in part reflects legislated changes in payments made to hospitals and other providers. A VIEW FROM THE FED John C. Williams, President and CEO, Federal Reserve Bank of San Francisco n The Fed — continued on page 10 9 FALL 2015