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CNBC Exclusive: CNBC Transcript: CNBC's Steve Liesman Speaks with San Francisco Fed President Today on CNBC's "Power Lunch"

WHEN: TODAY, THURSDAY, May 5, 2016

WHERE: CNBC'S "POWER LUNCH"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with San Francisco Fed President John Williams on CNBC's "Power Lunch" today. Following is a link to video of the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000513997&play=1.

All references must be sourced to CNBC.

LIESMAN: MELISSA, THANKS VERY MUCH. I'M HERE AT THE HOOVER INSITIUTIONS ANNUAL MONETARY POLICY CONFERENCE AND I HAVE SAN FRANCISCO FED PRESIDENT JOHN WILLIAMS WHO IS SORT OF A HOST FOR THIS SINCE THE CONFERENCE IS TAKING PLACE IN YOUR REGION.THANKS FOR JOINING US.

WILLIAMS: THANKS FOR COMING HERE TO STANFORD.

LIESMAN: LET'S TALK ABOUT THE BROADER NATIONAL ECONOMIC OUTLOOK. THINGS HAVE GOTTEN A LITTLE SOFTER HERE, RUNNING ABOUT HALF A POINT, 0.7 ON FIRST QUARTER GDP AFTER A NOT TO WRITE HOME ABOUT 1.4% IN THE FOURTH QUARTER OF LAST YEAR, BUT YOU'VE BEEN PRETTY OPTIMISTIC ABOUT THE TURNAROUND. GIVE US A REASON WHY. JUST BECAUSE YOU LIVE OUT HERE IN SAN FRANCISCO THAT YOU ARE OPIMISTIC?

WILLIAMS: NO, IT'S NOT JUST BECAUSE I'M OPTIMISTIC. BUT I THINK WE HAVE TO BE CAREFUL TO NOT OVER INTERPRETING OR OVER REACTING TO THAT FIRST QUARTER GDP DATA. WE'VE SEEN OVER THE LAST SEVERAL YEARS ACTUALLY MUCH LONGER THE FIRST QUARTER DATA TENDS TO COME IN MUCH WORSE EVEN AFTER THE SEASONAL ADJUSTMENT THAN OTHER QUARTERS, AND MY COLLEAGUES AT THE SAN FRANCISCO FED THINK THAT THE UNDERLYING GROWTH IS REALLY AROUND 2% IN THE FIRST QUARTER. WE'LL HAVE TO WATCH THE DATA AS WE GET THE FROM MARCH, APRIL AND MAY GOING FORWARD TO SEE WHETHER MY FORECAST FOR BETTER GROWTH IN THE SECOND QUARTER COMES TRUE. I'M NOT TAKING TOO MUCH OF A SIGNAL FROM THE FIRST QUARTER GDP RIGHT NOW.

LIESMAN: IT COULD BE IN FACT A POINT AND A HALF HIGHER THAN IS ACTUALLY BEING REPORTED?

WILLIAMS: ABSOLUTELY AND THAT WOULD BE COMPLETELY CONSISTENT WITH THE TREND IN WHAT WE SAW RESIDUAL SEASONALITY THAT WE HAVE SEEN IN THE FIRST QUARTER FOR MANY YEARS NOW. THE OTHER THING I WOULD POINT OUT IS JOB GROWTH HAS BEEN REALLY GOOD DURING THE FIRST QUARTER. OTHER INDICATORS OF THE ECONOMY HAVE ALSO BEEN GOOD. I THINK IT'S THE GDP DATA THAT SEEMS TO BE OUT OF THE SYNC WITH THE REST OF THE DATA.

LIESMAN: CRITICS OF THE JOB GROWTH SAY HEY IT IS ALL PARTIME LOW WAGED JOB GROWTH IT'S NOT REALLY INDICATIVE OF A STRONG ECONOMY.

WILLIAMS: FIRST OF ALL, IT'S NOT ALL PART TIME, IT'S NOT ALL LOW WAGE JOBS. WE'RE SEEING INCREASES IN JOBS THROUGHOUT THE SPECTRUM OF LOW, MEDIUM AND HIGHER-WAGE JOBS. ALSO WE'RE SEEING THE VAST MAJORITY OF JOBS ARE FULL TIME JOBS. STILL AN ELEVATED NUMBER OF PART TIME JOBS OUT THERE, BUT THOSE NUMBERS HAVE BEEN COMING DOWN. I LOOK AT A LOT OF DATA. THEY'RE ALL POINTING IN THE RIGHT DIRECTION IN TERMS OF THE LABOR MARKET.

LIESMAN: THE FED HELD OFF IT SEEMS IN TERMS OF RAISING INTEREST RATES THE PAST SEVERAL MEETINGS IN PART BECAUSE OF WHAT IS GOING ON GLOBALLY AND GLOBAL ECONOMIC WEAKNESS. WHAT IS YOUR GAUGE RIGHT NOW OF THE EFFECT OR POTENTIAL FOR GLOBAL ECONOMIC WEAKNESS TO AFFECT THE US.

WILLIAMS: WELL CLEARLY THE US IS PART OF A GLOBAL ECONOMY AND A GLOBAL FINANCIAL SYSTEM WE SPEND A LOT OF TIME STUDYING AND ANALYZING WHAT IS HAPPENING AROUND THE WORLD, AND THAT IS TRUE IN JANUARY AND FEBRUARY, THERE WASA LOT OF UNCERTAINLY AND CONCERN ABOUT WHAT'S HAPPENING IN CHINA AND ASIA MORE BROADLY AND EUROPE AND ELSEWHERE, I THINK WE HAVE SEEN THAT CALM DOWN QUITE A BIT, AND THE INCOMING DATA I THINK ARE CONSISTENT WITH REASONABLY GOOD GLOBAL GROWTH. I THINK CONCERNS AT LEAST I HAD AROUND GLOBAL ECONOMIC DEVELOPMENTS HAVE COME DOWN AND THE UNCERTAINTIES AROUND THOSE SEEMS TO HAVE COME DOWN. I THINK WE ARE IN A PRETTY GOOD PLACE AROUND THAT.

LIESMAN: YOU SOUND LIKE A GUY WHO WOULDN'T BE RELUCTANT TO RAISE RATES RELATIVELY SOON.

WILLIAMS: MY FOCUS IS LOOKING AT OUR TWO MANDATES. MAXIMUM EMPLOYMENT AND PRICE STABILITY. WE MADE A LOT OF PROGRESS WE ARE CLOSE TO MAXIMUM EMPLOYMENT BASED ON A BROAD SET OF MEASURES. THE INFLATION DATA HAVE ACTUALLY BEEN PRETTY ENCOURAGING REGARDING GETTING BACK TO 2% INFLATION, WHICH WE WANT TO SEE. I THINK WE SHOULD STAY ON OUR BASIC STRATEGY OF GRADUALLY REMOVING POLICY ACCOMMODATION OVER THE NEXT FEW YEARS, AND THAT WOULD INVOLVE SOME RATE HIKES THIS YEAR.

LIESMAN: HOW MANY IS WHAT EVERYBODY WANTS TO KNOW HOW MANY RATE HIKES THIS YEAR?

WILLIAMS: DATA-DEPENDENT. AND SO YOU LOOK AT THE PROJECTIONS WE MADE BACK IN MARCH AND TYPICALLY PEOPLE SAID TWO OR THREE RATE HIKES THIS YEAR. I THINK THAT'S A REASONABLE VIEW, BUT WE'LL BE WATCHING THE DATA, MAKE SURE THAT Q1 BLIP OR SLOWDOWN IN GDP DOESN'T PERSIST, WATCHING THINGS GLOBALLY MAKING SURE WE'RE MAKING THE RIGHT CALL.

LIESMAN: HERE IN SAN FRANCISCO YOU CAN'T BE IMMUNE TO WHAT'S HAPPENING NATIONALLY ON THE POLITICAL FRONT. WE HAD DONALD TRUMP ON THIS MORNING, AND HERE'S WHAT HE SAID ABOUT JANET YELLEN AND LOW INTEREST RATES. GIVE A LISTEN.

DONALD TRUMP SOUND: WHEN HER TIME IS UP I WOULD MOST LIKELY REPLACE HER, BECAUSE OF THE FACT THAT I THINK IT WOULD BE APPROPRIATE. SHE'S A LOW INTEREST RATE PERSON, SHE'S ALWAYS BEEN A LOW INTEREST RATE PERSON, AND I MUST BE HONEST, I'M A LOW INTEREST RATE PERSON. IF WE RAISE INTEREST RATES AND IF THE DOLLAR STARTS GETTING TOO STRONG, WE'RE GOING TO HAVE SOME VERY MAJOR PROBLEMS.

LIESMAN: SO, A COUPLE THINGS, FIRST OF ALL, IS IT WEIRD THAT A MEMBER OF THE GOP, WHICH HAS BEEN VERY CRITICAL OF LOW RATES FROM THE FED IS NOW SAYING THAT LOW RATES SEEM TO BE GOOD?

WILLIAMS: WELL, YOU KNOW PERSONALLY I THINK CHAIRMAN YELLEN IS DOING A TERRIFIC JOB. SHE'S BEEN NAVIGATING THE FED THROUGH VERY DIFFICULT AND CHALLENGING TIMES. I THINK SHE'S NOT ONLY A GREAT ECONOMIST, GREAT POLICY MAKER, SHE'S A GREAT LEADER OF THE FED. I'M 100% IN FULL SUPPORT OF WHAT SHE'S DOING. IN TERMS OF POLITICS, HONESTLY MY VIEW IS TO KEEP MY HEAD DOWN, STUDY THE DATA, FOCUS ON THE GOALS WE'VE BEEN GIVEN BY CONGRESS TO ACHIEVE PRICE STABILITY AND MAXIMUM EMPLOYMENT. THAT'S WHAT I'M FOCUSED ON. KEEP OUT OF POLITICS, STAY APOLITICAL.

LIESMAN: I GET THAT IT MAKES SENSE TO ME, BUT IN OUR CNBC FED SURVEY, WE ASKED ECONOMISTS, FUND MANAGER AND STRATEGISTS, ABOUT THE EFFECT OF THE PRESIDENTIAL CAMPAIGN ON THE OUTLOOK, AND MANY SAID IT WAS NEGATIVE. IT HAS TO FIGURE INTO YOUR THINKING THAT-- THERE'S SOME UNCERTAINTY BEING ENGENDERED BY THIS THE DATA, 61% IN APRIL SAID THE EFFECT OF THE PRESIDENTIAL CAMPAIGN ON THE OUTLOOK IS NEGATIVE.

WILLIAMS: THAT IS SOMETHING WE'VE BEEN STUDYING FOR MANY YEARS, HOW UNCERTAINLY AROUND THE ECONOMY AROUND POLITICS DO AFFECT THE WILLINGNESS TO INVEST TO WILLINGNESS TO HIRE WORKERS SO THAT'S SOMETHING WE HAVE TO TAKE INTO ACCOUNT TO THE EXTENT IT'S HAPPENING. THAT AFFECTS THE OUTLOOK AND THAT'S GOING TO AFFECT OBVIOUSLY OUR ASSESSMENT OF APPROPRIATE POLICY. RIGHT NOW THE INDICATORS I FOCUS ON ABOUT UNCERTAINLY, CONSUMER CONFIDENCE, BUSINESS CONFIDENCE, THEY ACTUALLY LOOK PRETTY GOOD. I'M NOT SO WORRIED ABOUT THAT, BUT AGAIN WE LOOT AT A LOT OF DATA A LOT OF ANALYSIS, SO JUST FOCUS ON OUR JOB.

LIESMAN: I LIVED FOR SIX YEARS IN RUSSIA, A PLACE THAT PEOPLE WANTED TO LEAVE. NOW I'M IN SAN FRANCISCO WHERE THERE WAS A RECENT POLL THAT SAID 34% WANT TO LEAVE SAN FRANCISCO, BECAUSE IT'S TOO EXPENSIVE. IS THAT SOMETHING YOU THINK ABOUT AT ALL IN TERMS OF WHAT'S GOING ON IN THE ECONOMY OF YOUR REGION HERE?

WILLIAMS: IT'S VERY DIFFERENT FROM RUSSIA. PEOPLE ARE COMING HERE FOR JOBS. JOB GROWTH IS FANTASTIC. IT'S JUST GOTTEN EXTREMELY EXPENSIVE. SO THIS IS A BIG CONCERN. WE HAVE A BIG CONCERN ABOUT AFFORDABLE HOUSING, MAKING SURE THERE IS HOUSING, AND AFFORDABLE LIVING FOR PEOPLE IN OUR REGION, SOMETHING THAT THE FED WORKS WITH LOCAL GOVERNMENT, AND WITH BANKS AND OTHER COMMUNITY ORGANIZATIONS TRYING TO WORK OUT SOLUTIONS TO FIND AFFORDABLE HOUSING. BASICALLY HEALTHY, STRONG COMMUNITIES, BUT THIS IS A HUGE CHALLENGE. THIS IS FOR US IT'S A BOOMING ECONOMY HERE, AND IT HAS GOTTEN REALLY EXPENSIVE.

LIESMAN: ONE PART OF THE BOOMING ECONOMY, AND WE HAVE TO GO HERE, BUT IS THIS SHARING OR GIGAECONOMY, WHAT EFFECT IS THAT HAVING ON JOBS AND JOB GROWTH?

WILLIAMS: THE DATA THAT WE DO HAVE INCLUDES EVERYBODY, INCLUDING PEOPLE WHO ARE DRIVING, YOU KNOW, FOR UBER OR LYFT, OTHER COMPANIES LIKE THAT. IT'S STILL A PRETTY TINY PART OF THE US ECONOMY, SOMETHING WE'RE STUDYING TRYING TO UNDERSTAND HOW THESE DISRUPTIVE TECHNOLOGIES ARE CHANGING THE ECONOMIC LANDSCAPE. RIGHT NOW IT'S NOT A BIG PART OF IT. WE DON'T THINK IT'S A DRIVER FUNDAMENTALLY OF WHAT'S HAPPENING WITH THE ECONOMY. LET ME GO BACK TO THE BIG POINT. WE HAVE UNEMPLOYMENT OF 5%, THE ECONOMY IS GROWING, WE ADDED OVER 2.75 MILLION JOBS LAST YEAR AND WE'RE PROBABLY ADDING 2 TO 2.5 MILLION JOBS THIS YEAR THE WE'RE A VERY GOOD PLACE I THINK FOR THE U.S. ECONOMY TODAY.

LIESMAN: JOHN THANK YOU FOR JOINING US.

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