Is right now as good as it gets for the economy?
San Francisco Fed President John Williams seems to be saying we’re getting pretty darn close. In an interview with me at the Yahoo Finance headquarters, Williams said that the economy was “in a good place,” and that the Fed’s job has now changed from getting the economy back on track to keeping the economy on track.
It’s an important distinction.
As the economy has recovered from the Great Recession of 2009 when the unemployment rate hit 10%, the Fed has moved from stabilizing the U.S. economy and bringing it back to life, to now keeping an eye on making sure it doesn’t overheat as the rate of unemployment has dropped to 4.7%.
Williams said it was matter of getting the economy “just right.” He continued, invoking the Goldilocks metaphor, meaning the economy shouldn’t too hot or too cold, it should be just right.
“[In terms of the} Goldilocks analogy, we don’t want it get too hot because that creates imbalances that lead to a recession but of course we don’t want to lose the hard won gains we’ve made since the end of the recession,” said Williams.
“I want to see an economy that’s basically running like it is now, with four, to four and a three quarters unemployment, that’s really low on a historical basis. Good steady income growth and inflation around 2% and I think that’s the track we’re on and as long as we stay on the path we’re on gradually removing monetary stimulus to the economy, I think we can navigate this.”
I asked Williams if he thought we’re in Goldilocks state right now.
“I think we’re getting closer to that. I feel like you’re setting me up for hubris here, right? In the sense that you never know what’s going to happen next. But I think we’re in a good place.”
Williams noted that four years ago when he gave a speech in New York, unemployment was at 8%, inflation was really low and there was “real pessimism” that we could get the economy back.
“That isn’t the story at all now,” he said.
“[Our job now is to] keep the economy on track,” he added. “Before it was ‘Get the economy back on track.’ Our job has changed. The economy has improved, now it’s about ‘Don’t let economy go off the rails, don’t let a bubble economy to develop.'”
“We have an economy close to where we want it to be,” Williams said. “Now let’s keep it growing.”
Hearing Williams talk makes you wonder if these aren’t the good old days. Right here, right now.
