FAIRFIELD — The top executive of the Federal Reserve Bank of San Francisco told a gathering of business and government leaders Thursday that the economy is healthy and the Fed’s monetary policy focus has changed from short-term recovery to long-term growth and stability.
“It’s more about getting the economy on a consistent pattern,” said John Williams, guiding his left hand as if following an upward trend on a chart.
He said he expects the gross national product to increase by about 2 percent in 2017, and because of the changing demographics of the labor force, he also expects productivity growth to maintain a slower pace than historical levels.
Williams was one of two keynote speakers at the 34th annual Solano Economic Development Corporation luncheon meeting at the Hilton Garden Inn in Fairfield. The other speaker was Gen. Carlton D. Everhart II, commander of Air Mobility Command out of Scott Air Force Base, Illinois. The 60th Air Mobility Wing at Travis Air Force Base is under his authority.
The four-star general also touched on economic matters, noting the estimated $1.6 billion annual impact Travis Air Force Base has on the regional economy and the $15 billion economy his command generates globally.
Williams talked at length about the national labor force, noting that is one of the critical pieces in the Fed’s annual goals.
He said realistically, the country has reached its maximum employment level, with an unemployment rate of about 4.7 percent. He also said that because of the number of retiring baby boomers in an aging society, and the lower birth rate, the country needs to create only about 80,000 new jobs each month instead of the 150,000 in the recent past.
The other critical piece in the Fed’s goals is price stability. Williams said that is why interest rates have been raised twice in recent months, and that he fully expects inflation to be maintained at what he described as a healthy 2 percent. The price of oil, which have increased in recent months, is a big part of that equation.
He said he wants to see a Goldilocks economy, “not too hot and not too cold.”
Williams said the greatest threats to and uncertainties about the economy remain the usual suspects of economic pressures from Europe, Asia and shifting oil prices, and said the challenges will have far less to do with a new administration and Congress.
“We always have uncertainties when making monetary policy,” Williams said.
The shift to a stiffer regulatory posture in the finance sectors will help in that regard, he said.
Asked what the effect of income inequality might have on the economy, Williams did point out risks if that gap continues to grow. He noted the negative impact it can have on consumer spending. More importantly, he suggested, is the effect it has on the morale of those who can no longer achieve the American dream.
“What we know is for people to live the American dream, it is much harder if you start three steps back,” Williams said.
From his perspective, he said it is critical to invest in education to give the next generations a step up – and that starts before kindergarten and continues through K-12.
“And that makes me worry about the investments we are making in the youth today,” Williams said.
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