By Nathan Moorman
Everything seems to be moving in the right direction, according to Dr. John C. Williams, president of the Federal Reserve Bank of San Francisco and keynote speaker at the UCLA Anderson Forecast's third quarterly economic forecast conference in 2015.
Williams said this is the seventh year of expansion and the economy has momentum to continue in that direction despite global headwinds and risks. Consumer spending increased more than 3 percent in the last year. Auto sales are on pace to reach 17 million this year — the highest they’ve been since the 2000s. Household debt is down and real incomes are growing strongly.
Williams also expects the unemployment rate to fall below 5 percent later this year and remain there through 2016, with the U.S. on pace to add 2.5 million jobs this year. This means we should reach or exceed full employment on a broad set of measures by the end of this year or early in the next one.
He forecasts real GDP increasing at a 2.25 percent annual rate in the second half of 2015 and GDP growth to be slightly above 2 percent next year. There also might be more of an up side on the way with housing potentially rebounding more strongly and a possible consumer spending surging resulting from low gas prices. However, the potential down side of further slowdown from weakening foreign economies or further depreciation of the dollar remains.
Despite all the improvements, Williams cautioned against too much optimism. With continued growth, it might be time to raise interest rates in order to prevent large imbalances from occurring — recall the dot-com bubble and the housing bubble of the 2000s. He stressed heading off circumstances like those as early as possible since fewer options are available as the imbalances become more severe.
John C. Williams is the president and CEO of the Federal Reserve Bank of San Francisco. He also serves as the managing editor of the International Journal of Central Banking. He holds a doctorate from Stanford, a master’s of science with distinction in economics from the London School of Economics and an A.B. with high distinction from the University of California, Berkeley.