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CNBC Exclusive: CNBC Transcript: San Francisco Fed President John Williams Sits Down with CNBC’s Steve Liesman on “Power Lunch” Today

WHEN: Today, Thursday, January 5th

WHERE: CNBC's "Power Lunch"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with San Francisco Fed President John Williams and CNBC's Steve Liesman on CNBC's "Power Lunch" (M-0F, 1PM-3PM ET) today, Thursday, January 5th. Following is a link to the video on CNBC.com:http://video.cnbc.com/gallery/?video=3000581535.

All references must be sourced to CNBC.

LIESMAN: WELCOME BACK TO "POWER LUNCH," I'M STEVE LIESMAN IN CHICAGO AHEAD OF THE AMERICAN ECONOMIC ASSOCIATION ANNUAL MEETING WITH AN EXCLUSIVE INTERVIEW WITH SAN FRANCISCO FED PRESIDENT JOHN WILLIAMS. THANKS FOR JOINING US.

WILLIAMS: GREAT TO BE HERE.

LIESMAN: SO I AM IN AN EXTRAORDINARY POSITION AND YOU IN AN UNFORTUNATE ONE WE JUST GOT A TWEET FROM THE PRESIDENT-ELECT CRITICIZING A FOREIGN COMPANY FOR BUILDING A PLANT IN THE U.S. -- IN MEXICO, THREATENS A BORDER TAX, AND YOU CAN EXPLAIN TO ME HOW AN ECONOMIST LIKE YOURSELF, A FED OFFICIAL, HOW DO YOU REACT? ONE EYEBROW UP, TWO EYEBROWS? HOW DO YOU PROCESS SOMETHING LIKE THAT?

WILLIAMS: THE WAY I REACT TO IS JUST FOCUSING ON MY JOB.

LIESMAN: SURE.

WILLIAMS: AND MY JOB IS TO KEEP THE ECONOMY GROWING AT FULL STRENGTH, GET FULL EMPLOYMENT, GET OUR INFLATION RATE AT 2% AND FOCUS ON WHAT MONETARY POLICY CAN AND CAN'T DO AND TAKE THE REST OF WHAT'S HAPPENING AS OUTSIDE MY PURVIEW.

LIESMAN: BUT YOU DO NEED TO PROCESS IT. BECAUSE THE MINUTES SHOWED US YESTERDAY THAT ONE OF THE CONCERNS OF THE FEDERAL RESERVE ARE TRADE BARRIERS. HOW MUCH CONCERN ARE SUCH TRADE BARRIERS AND WHAT KIND OF EFFECTS WILL THEY HAVE ON THE ECONOMY?

WILLIAMS: SO THIS IS OBVIOUSLY ALL THESE ISSUES, FISCAL POLICIES OR OTHER POLICIES ARE THINGS WE STUDY VERY CAREFULLY AND ANALYZE AND LOOK SPECIFICALLY ABOUT WHAT IT MEANS FOR JOB GROWTH AND INFLATION AND MEAN FOR MONETARY POLICY? WE DO A LOT OF ANALYSIS AROUND THESE VARIOUS ISSUES, HOW BIG THE EFFECTS WOULD BE AND WHAT THE TIMING WOULD BE AND SCENARIO ANALYSIS AROUND THAT. AGAIN, FROM MY PERSPECTIVE, WE DON'T KNOW WHAT'S GOING TO HAPPEN, AND AS WE LEARN MORE WE WILLCHANGE OUR FORECAST, WE'LL SEE.

LIESMAN: SURE ARE THE TRADE BARRIERS A POTENTIAL NEGATIVE?

WILLIAMS: WELL, CLEARLY, IF A NUMBER OF COUNTRIES HAVE TRADE BARRIERS, THAT WOULD HAVE A NEGATIVE IMPACT ON GROWTH AND IT WOULD ALSO RAISE INFLATION, TOO. SO I MEAN, THERE'S ARE A LOT OF FACTORS THAT CAN COME OUT OF VARIOUS POLICY ACTION, AND, AGAIN, FROM MY PERSPECTIVE WE JUST TRY TO ANALYZE THEM ALL AND WHAT IT MEANS FOR THE ECONOMY.

LIESMAN: MINUTES OF THE MEETING YESTERDAY SHOWED THAT ABOUT HALF THE PARTICIPANTS RAISED THEIR OUTLOOK BECAUSE OF THE TEXPECTATIONS OF FISCAL POLICY. I HAVE TO ASK IF YOU WERE ONE OF THEM?

WILLIAMS: SO MY OWN VIEW IS IT'S VERY HARD TO KNOW WHAT FISCAL POLICY WILL BE VOER THE NEXT COUPLE OF YEARS, BUT THE WAY I VIEWE VIEWED IT WAS RELATIVE TO A FEW MONTHS AGO, I THINK THE DISTRIBUTION OF LIKELY OUTCOME IN TERMS OF FISCAL POLICY IS MORE STIMULUS THAT I WAS THINKING A FEW MONTHS AGO AND I BUILT THAT INTO MY OWN.

LIESMAN: CAN I JUST DO ENGLISH ON THAT DISTRIBUTION OUTCOMES MEANS THERE IS A BETTER CHANCE THAT IT'S GOING TO BE MORE GROWTH,

WILLIAMS: FISCAL STIMULUS, A MODEST EFFECT ON GROWTH OVER THE NEXT COUPLE YEARS. I DON'T KNOW EXACTLY WHAT IT LOOKS LIKE, BUT I THINK ON THAT, PROBABLY MORE FISCAL --

LIESMAN: CAN YOU GIVE US KIND OF THE RANGES AROUND WHICH WE MEAN GROWTH? I MEAN, THERE'S NUMBERS THROWN OUT THAT GROWTH COULD ACCELERATE TO 3%, 4%, 5%, BUT MY GUESS IS YOU THINK THE NATURAL GROWTH RATE OF THE ECONOMY IS BELOW 2%?

WILLIAMS: RIGHT. SO MY VIEW IN TERMS OF THE DEMOGRAPHIC AND PRODUCTIVITY TREND WE'VE BEEN SEEING FOR THE LAST DECADE OR SO IS GROWTH IS LIKELY TO BE 1.5% TO 1.75%. NOW, SOME POLICIES COULD CHANGE THAT IF WE FIND WAYS TO DO A LOT MORE IINVEST IN PEOPLE AND TECHNOLOGY. MORE BROADLY IN INFRASTRUCTURE. I THINK WE CAN SHIFT THAT UPWARDS. RIGHT NOW, MY VIEW IS A LOT OF THE FISCAL STIMULUS PEOPLE HAVE BEEN TALKING ABOUT WOULD HAVE A RELATIVELY MODEST EFFECT.

LIESMAN: WHEN YOU SAY SHIFT UPWARDS, ARE YOU LOOKING FOR AN EXTRA HALF POINT, EXTRA POINT? WHAT KIND OF NUMBERS CAN AN ECONOMY DO OF THIS SIZE? CAN WE ADD TWO PRECENTAGE POINTS OF GROWTH?

WILLIAMS: I THINK WHEN YOU LOOK BACK AT HISTORY, AND THE PERIODS WHERE WE HAVE HAD VERY RAPID PRODUCTIVITY GROWTH THAT WOULD GIVE US AN EXTRA TWO POINTS OF GROWTH, THAT'S PERIODS OF GROUND BREAKING CHANGES AND TECHNOLOGY AND HOW THE ECONOMY WORK. THAT COULD HAPPEN IN THE FUTURE. I DON'T HAVE A CRYSTAL BALL ABOUT THAT, BUT YOU'RE TALKING ABOUT TRANSFORMATIVE CHANGE TO THE ECONOMY.

LIESMAN: THE AVERAGE FED OFFICIALS LOOKING FOR THREE RATE HIKES NEXT YEAR. ARE YOU AN AVERAGE FED OFFICIAL?

WILLIAMS: I DON'T KNOW IF I'M AVERAGE, BUT I WILL SAY THAT I THINK THAT THAT'S -- YOU KNOW, THE CENTRAL TENDENCY OF THE VIEWS OF MY COLLEAGUES ARE AROUND THREE RATE HIKES. THAT'S A REASONABLE VIEW GIVEN UNEMPLOYMENT IS 4.6%, ECONOMY'S GROWING AT 2% AND INFLATION GOING BACK TO 2%. THAT'S A PRETTY REASONABLE ASSUMPTION.

LIESMAN: THREE SEEMS TO BE IN THE BALLPARK OF WHAT YOU HAVE BEEN LOOKING FOR?

WILLIAMS: ABSOLUTELY.

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