×

CNBC Transcript: CNBC Exclusive: Federal Reserve Bank of San Francisco President John Williams Speaks with CNBC's Steve Liesman Today

WHEN: Today, Friday, January 30th at 2:15pm ET

WHERE: CNBC's "Street Signs"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Federal Reserve Bank of San Francisco President John Williams on CNBC's "Street Signs" today. Following is a link to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000349340.

All references must be sourced to CNBC.

STEVE LIESMAN: WELCOME BACK TO "STREET SIGNS" I'M STEVE LIESMAN INSIDE THE FEDERAL RESERVE BANK OF SAN FRANCISCO WITH PRESIDENT JOHN WILLIAMS

JOHN WILLIAMS: WELCOME TO THE SAN FRANCISCO FED, STEVE.

LIESMAN: WELL, THANKS FOR HAVING ME HERE. WE GOT SOME DATA THIS MORNING, JOHN, GDP CAME IN SOFTER THAN EXPECTED. BELOW 3%. A SHARP SLOWDOWN FROM THE THIRD QUARTER, WHICH WAS 5%. DOES IT CREATE ANY CONCERN THAT YOU HAVE THAT THE ECONOMY MAY BE SLOWING MORE THAN YOU HAD EXPECTED?

WILLIAMS: NO, IT DOESN'T FOR ME. YOU HAVE TO LOOK KIND OF UNDER THE HOOD OF IT TO UNDERSTAND WHAT WAS IN THAT GDP RELEASE. I STILL SEE STRONG, VERY STRONG CONSUMER SPENDING. WE ALSO KNOW THE CONSUMER CONFIDENCE IS QUITE HIGH. WE'RE ALSO SEEING REALLY GOOD REAL INCOME GROWTH FOR HOUSEHOLDS. SO I SEE A LOT OF STRENGTH IN THE DOMESTIC ECONOMY. SOME OF THE NEGATIVES WERE KIND OF EXPECTED. PAYBACK FROM THAT STRONG THIRD QUARTER. MORE GENERALLY I SEE THE U.S. ECONOMY ENTERING INTO THIS YEAR WITH A LOT OF MOMENTUM FOR VERY GOOD GROWTH.

LIESMAN: SO WHAT'S YOUR NUMBERS LIKE FOR SAY THE BEGINNING OF THIS YEAR AND FOR THE FULL YEAR?

WILLIAMS: SO FOR REAL GDP GROWTH, I EXPECT TO SEE GROWTH AROUND 3%. SO BETTER THAN LAST YEAR.

LIESMAN: WITH A CAVEAT, YOU HAVE BEEN PREDICTING THREES FOR A LONG TIME, RIGHT? THEY HAVEN'T REALLY COME TO PASS.

WILLIAMS: SO I THINK WE'VE GOTTEN REALISTIC. BETWEEN 2.5 AND 3 IS WHAT WE CAN EXPECT. BUT I FEEL LIKE WE'VE GOT GOOD MOMENTUM THIS YEAR. WE'RE SEEING REALLY GOOD JOB GROWTH. WE ADDED NEARLY 250,000 JOBS ON AVERAGE A MONTH LAST YEAR. I DON'T EXPECT JOB GROWTH TO BE THAT STRONG THIS YEAR, BUT STILL VERY GOOD. I'M EXPECTING THE UNEMPLOYMENT RATE TO REACH 5% BY THE END OF THIS YEAR.

LIESMAN: WOW.

WILLIAMS: SO THIS IS A VERY GOOD YEAR.

LIESMAN: AND WHAT'S YOUR DEFINITION OF THE NONACCELERATING UNEMPLOYMENT RATE – INFLATION RATE OF UNEMPLOYMENT?

WILLIAMS: SURE, I VIEW A NORMAL UNEMPLOYMENT RATE TO BE ABOUT 5.2%. OF COURSE, THERE'S AIR BANDS AROUND THAT KIND OF ESTIMATE. BUT 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. IT IS ONE OF THE REASONS I THINK THAT WE ARE GOING TO SEE WAGE GROWTH, AND QUITE HONESTLY, INFLATION STARTING TO EDGE UP ONCE WE GET PAST THIS PERIOD OF LOW INFLATION.

LIESMAN: SO WE HAVE TO GET BACK TO THE IMPLICATIONS OF THIS FOR YOUR THOUGHTS ON POLICY, BUT WE HAD OTHER DATA THIS MORNING THAT'S VERY LACKLUSTER WAGE GROWTH. WHEN YOU LOOK AT THE EMPLOYMENT COST INDEX, IT WAS UP A LITTLE BIT. 2.3%. SOME ECONOMISTS SAID YOU KNOW WHAT? THAT THING AT 3.5 OR 4% THAT'S WHEN YOU START TO GET A TIGHT LABOR MARKET.

WILLIAMS: I AGREE WITH THAT. WE'RE NOT IN A TIGHT LABOR MARKET YET. I AM A CALIFORNIAN. I'M A GLASS HALF FULL KIND OF PERSON. I ACTUALLY SAW THAT THAT PICK UP IN WAGE GROWTH IS A POSITIVE SIGN. IT'S TRUE. I'M LOOKING FOR 3 TO 3.5% WAGE GROWTH IN A FULL STRENGTH ECONOMY. WE'RE NOT THERE YET. I DO THINK IT'S ENCOURAGING THAT WE'RE SEEING SOME PICK-UP IN WAGES, BUT I REALLY DON'T EXPECT WAGES TO START REALLY PICK UP UNTIL THE ECONOMY GETS EVEN STRONGER. SO TO ME THIS IS CONSISTENT WITH MY VIEWS ON THE ECONOMY.

LIESMAN: YOU ALSO HAD A TICK DOWN WHEN YOU LOOK AT CORE PCE INFLATION, WHICH IS SOMETHING YOU OBVIOUSLY FOLLOW. IT'S A DIFFERENT MEASURE OF INFLATION THAT YOU FOLLOW FOR A NUMBER OF REASONS. BUT THAT TICK DOWN JUST A LITTLE BIT TO 1.4% MOVING AWAY FROM YOUR 2% TARGET.

WILLIAMS: RIGHT AND I RECOGNIZE THAT. OBVIOUSLY THE BIG STORY FOR THE FED RIGHT NOW IS INFLATION. IT'S RUNNING BELOW OUR 2% INFLATION GOAL, AND WITH THE STRENGTH OF THE DOLLAR AND THE BIG DECLINE IN ENERGY PRICES, WE'RE GOING TO SEE INFLATION RUN WELL BELOW 2% FOR THE NEXT SEVERAL MONTHS AND A COUPLE OF QUARTERS. WE HAVE TO READ THROUGH THAT. RECOGNIZE THERE'S A TRANSITORY EFFECT. MY VIEW IS THAT ONCE THOSE EFFECTS KIND OF RUN THROUGH THE ECONOMY, WE'RE GOING TO SEE UNDERLYING INFLATION AND OVERALL INFLATION START PICKING UP IN THE SECOND HALF OF THIS YEAR. I EXPECT US TO BE CLOSE TO 2% INFLATION BY THE END OF NEXT YEAR.

LIESMAN: NEXT YEAR. END OF '16?

WILLIAMS: END OF 16.

LIESMAN: SO DOES ALL THAT KEEP YOU ON TRACK FOR WHAT YOU HAD SAID EARLIER, WHICH IS A MID-2015 FIRST RAKE HIKE, OR LIFT-OFF OF THE FED?

WILLIAMS: SO MY CURRENT VIEW AND THIS IS, OF COURSE, MY VIEW. I'M NOT SPEAKING FOR MY COLLEAGUES. IT'S THAT AROUND THE MIDDLE OF THIS YEAR IS THE TIME THAT I THINK IN MY VIEW THAT WE'LL BE GETTING CLOSER TO THE SHOULD WE RAISE RATES NOW OR SHOULD WE WAIT A LITTLE LONGER, COLLECT SOME MORE DATA, GET MORE CONFIDENCE IN THE FORECAST? MY VIEWS ARE BASICALLY THE SAME AS THEY HAVE BEEN FOR THE LAST FEW MONTHS. THE ROUND MIDYEAR IS A GOOD GUESS. FOR WHEN WE REALLY ARE GETTING CLOSE TO THAT POINT, THAT RAISING RATES WILL BE APPROPRIATE. I'M NOT PREDICTING THAT IT WILL BE JUNE OR ANY PARTICULAR MEETING. BUT I THINK WE'RE GETTING CLOSER TO THAT POINT.

LIESMAN: BUT IF INFLATION IS NOT MOVING TOWARDS YOUR 2% TARGET, IF WAGES AREN'T MOVING UP OR ANYTHING CLOSE TO THAT 3% OR 3.5% TARGET, WHY WOULD YOU BE RAISING INTEREST RATES AT THAT TIME?

WILLIAMS: WELL I THINK TWO POINTS I WOULD LIKE TO GET ACROSS. FIRST OF ALL, WE ARE GETTING PRETTY CLOSE ALREADY BY THE MIDDLE OF THIS YEAR IN MY VIEW TO FULL EMPLOYMENT. IN OUR EMPLOYMENT MANDATE, I THINK WE'LL BE CLOSER TO ACHIEVING THAT. THE SECOND IS WE HAVE TO REMEMBER WE'RE STARTING FROM A POSITION WITH EXTRAORDINARY MONETARY ACCOMMODATION. WE HAVE ZERO INTEREST RATES, WHICH MEANS NEGATIVE INFLATION ADJUSTED INTEREST RATES. AND OVER A $4 TRILLION BALANCE SHEET. I'M NOT TALKING ABOUT NORMALIZING MONETARY POLICY OR EVEN TIGHTENING POLICY IN A WAY. I'M TALKING ABOUT STARTING TO PROCESS WHERE WE TRIM BACK SOME OF THE EXTRAORDINARY ACCOMMODATION WE HAVE IN PLACE.

LIESMAN: SO HOW MUCH WOULD YOU TRIM BACK THIS YEAR?

WILLIAMS: WELL –

LIESMAN: WHAT WOULD BE YOUR TARGET FOR THE –

WILLIAMS: STEVE, YOU KNOW WHAT I'M GOING TO SAY. IT DEPENDS ON THE DATA.

LIESMAN: I HAVE TO ASK. YOU KNOW I'M GOING TO ASK.

WILLIAMS: IT REALLY IS – WE'RE IN THAT MODE OF DATA DEPENDENCY, AND I THINK THAT'S THE RIGHT WAY TO DO MONETARY POLICY.

LIESMAN: LET ME SHIFT GEARS. A NEW CONCEPT WAS ADDED TO THE STATEMENT THIS TIME. INTERNATIONAL DEVELOPMENTS. WHAT DOES THAT MEAN AND HOW DOES THAT PLAY INTO POLICY?

WILLIAMS: SURE. OBVIOUSLY, EVERYONE UNDERSTANDS THE U.S. IS PART OF A GLOBAL ECONOMY. WE'RE AFFECTED BY EVENTS, ECONOMIC GROWTH EVENT PROSPECTS AROUND THE GLOBE. THAT'S ALWAYS BEEN TRUE. I THINK ADDING THAT PHRASE JUST AS RECOGNIZING CLEARLY WHAT'S HAPPENING IN THE GLOBAL ECONOMY IN TERMS OF GROWTH IN ASIA, IN EUROPE, AROUND THE WORLD, IS AN IMPORTANT FACTOR DETERMINING OUR EXPORTS. IT'S AN IMPORTANT FACTOR DETERMINING GLOBAL FINANCIAL CONDITIONS. IT'S JUST A RECOGNITION, I THINK, AN ACKNOWLEDGMENT THAT THAT'S THE WORLD WE LIVE IN, AND, OF COURSE, THOSE ARE FACTORS THAT ARE INDICATORS THAT INFLUENCE THE OUTLOOK FOR THE U.S. ECONOMY AND THAT'S WHAT AFFECTS MONETARY POLICY DECISIONS. IT'S NOT THAT WE HAVE GOALS AROUND FOREIGN GROWTH OR THINGS. IT'S REALLY AN INPUT INTO THINKING ABOUT WHERE THE U.S. ECONOMY IS GOING AND WHAT'S THE RIGHT POLICY IMPLICATIONS.

LIESMAN: JOHN, WE'RE GOING TO LEAVE IT HERE FOR NOW, BUT WE'RE GOING TO HAVE THEM TALKING FOR AN EXTRA WE'RE GOING TO DO FOR CNBC.COM. SO THANKS FOR THE MOMENT.

WILLIAMS: THANK YOU.

LIESMAN: MANDY AND BRIAN, BACK TO YOU. LIKE I SAID, WE'RE GOING TO SIT AND CHAT FOR ANOTHER COUPLE OF MINUTES RIGHT HERE, AND VIEWERS CAN SEE THE REST OF THE INTERVIEW ON CNBC.COM.

About CNBC:

With CNBC in the U.S., CNBC in Asia Pacific, CNBC in Europe, Middle East and Africa, CNBC World and CNBC HD , CNBC is the recognized world leader in business news and provides real-time financial market coverage and business information to approximately 371 million homes worldwide, including more than 100 million households in the United States and Canada. CNBC also provides daily business updates to 400 million households across China. The network's 15 live hours a day of business programming in North America (weekdays from 4:00 a.m. - 7:00 p.m. ET) is produced at CNBC's global headquarters in Englewood Cliffs, N.J., and includes reports from CNBC News bureaus worldwide. CNBC at night features a mix of new reality programming, CNBC's highly successful series produced exclusively for CNBC and a number of distinctive in-house documentaries.

CNBC also has a vast portfolio of digital products which deliver real-time financial market news and information across a variety of platforms. These include CNBC.com, the online destination for global business; CNBC PRO, the premium, integrated desktop/mobile service that provides real-time global market data and live access to CNBC global programming; and a suite of CNBC Mobile products including the CNBC Real-Time iPhone and iPad Apps.

Members of the media can receive more information about CNBC and its programming on the NBC Universal Media Village Web site at http://www.nbcumv.com/mediavillage/networks/cnbc/.