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Fed's Williams: Expect to see growth of 3% in 2015, unemployment rate at 5%

The U.S. economy has "good momentum," San Francisco Federal Reserve Bank President John Williams told CNBC on Friday.

Williams predicted that the U.S. will see real GDP growth around 3 percent in 2015, and that the unemployment rate will touch 5 percent by the end of the year. Still, the central banker said he did not see the Fed hitting its inflation target until the end of 2016.

"I see us getting to full employment basically by the end of this year or before then, and in fact having a pretty strong labor market," Williams said, explaining that he assesses normal levels of employment to be about 5.2 percent.

Consequently, he predicted that wage growth and inflation would both edge higher "once we get past this period of low inflation."

Despite wage growth remaining tepid, Williams took a positive outlook.

John Williams, president and chief executive officer of the Federal Reserve Bank of San Francisco.
David Paul Morris | Bloomberg | Getty Images
John Williams, president and chief executive officer of the Federal Reserve Bank of San Francisco.

"I do think it's encouraging that we're seeing some pickup in wages, but I really don't expect wages to start really picking up until the economy gets even stronger," he said.

Williams is a voting member of the Federal Open Market Committee this year.

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Friday's U.S. GDP data proved a major disappointment, with economists having predicted 3 percent growth compared to the actual 2.6 percent fourth-quarter figure. The missed expectations were particularly stark after the prior quarter's 5 percent growth. Some good news in that release, however, was consumer spending grew by 4.3 percent.

Williams said he was not concerned by the GDP figure, as he continues to see strength in the domestic economy, and many of the report's negatives were anticipated.

The Fed announced on Wednesday that it would remain "patient" in assessing when to raise rates, but it also upgraded its view of the U.S. economy by saying activity has expanded "at a solid pace."

This week's FOMC statement was a unanimous decision.

Williams recognized that "the big story for the Fed right now is inflation," and that with a strong dollar and low energy costs "we're going to see inflation run well below 2 percent for the next several months and a couple quarters."

He said that once the effect of these factors run through the economy, inflation should begin picking up in the second half of 2015.

Read MoreFed's Williams: 'Turbulence' likely if this occurs

By the end of 2016, he said, the U.S. should be close to the Fed's 2 percent inflation target.

Given this projection, Williams said he thought "around the middle of this year is the time that I think, in my view, that we'll be getting closer to 'Should we raise rates now, or should we wait a little longer, collect some more data, get more confidence in the forecast?'"

"Around midyear is a good guess for when we really are getting close to that point that raising rates will be appropriate," he said.

Read MoreFed: Will remain 'patient,' upgrades economy

In other words, Williams predicted that the Fed would begin discussions of a rate increase despite neither wage growth nor inflation hitting the central bank's targets.

He explained that the projections of nearly full employment and the economy's "extraordinary monetary accommodation" (zero-interest rates, and a more-than-$4 trillion balance sheet) would justify these discussions.

Williams had predicted earlier this month that "turbulence" would be likely if Fed tightening occurred while the European Central Bank and the Bank of Japan increased stimulus. The ECB went on to announce an open-ended bond-buying program last week.