When: Today, Friday, August 31st at 9AM ET

Where: CNBC’s “Squawk on the Street

Following is the unofficial transcript of a CNBC interview with San Francisco Federal Reserve President John Williams today, Friday, August 31st at 9AM ET on CNBC’s “Squawk on the Street.”

Following is a link to the embeddable video on

All references must be sourced to CNBC.


STEVE LIESMAN: Thanks very much. Here from Jackson Hole with John Williams, the president of the San Francisco Fed, a guy who I knew when he was research director at the San Francisco Fed. And--John, your first television interview. Thanks for joining us.

JOHN WILLIAMS: Happy to be here.

STEVE LIESMAN: You have spoken quite a bit that-- and said-- said in several speeches that there is still more that the Federal Reserve can do to help the economy. Skeptics say interest rates, 165 on the 10 year, corporations borrowing at record low rates, mortgages in the 3.5% range. Why would lower rates help the economy?

JOHN WILLIAMS: Well, I think lower rates help the economy in-- in a number of ways. And I think actually they have helped over the last few years quite a bit. One is this lower cost of borrowing for people. One sector of the economy that we're seeing start to recover, start to pick up, is housing. And lower interest rates, lower mortgage rates, clearly are going to stimulate the housing sector and maybe fuel a more rapid recovery in that sector, which I think is an important part of the bigger picture of the recovery.

More generally, the auto sector-- is obviously sensitive to interest rates. And-- and you think about broader financial conditions. Lower interest rates improve-- broader financial conditions, which I think boosts-- spending and jobs.

STEVE LIESMAN: Is it diminishing returns? Do you have to do more now to get the same kind of effect-- in additional Q.E. than you've-- than you've-- than you did-- previously?

JOHN WILLIAMS: Well, it's really hard to say. I mean, you know, the-- experience we've had with the various quantitative easing-type policies is pretty limited. There's a lot of research on that. A lot of people trying to gauge these effects.

I think right now our ability to estimate the effects is-- is-- is okay-- okay. We have a pretty good idea of their effects. But it's hard to tell whether there would be diminishing returns. I mean as we've gone through these policies I think they continue to have significant-- benefits-- but it's hard to say exactly-- whether there's been diminishing returns.

STEVE LIESMAN: When-- when you look at the economy right now-- 2% growth economy-- 8.3% unemployment, is it one that you think needs additional help from the Federal Reserve?

JOHN WILLIAMS: Well, I-- I look at it not only in terms of the current conditions, as you described, or the economy growing slightly below trend. Unemployment-- very high, but also where the outlook for the economy is. Right now, you know, growth-- my view is that growth will-- without further-- policy action, will stay around the current level. Around 2%-- through the rest of the year. And just a little bit above that, maybe-- next year.

So without further accommodation I see the unemployment rate basically staying where it is now, around 8.25%. At least for another year and a half. So given our mandated goals of maximum employment and price stability-- and given the fact that inflation is actually below our 2% objective and-- I expect it to remain that way for the next couple of years, I think the extra-- or additional monetary accommodation would be very useful to help boost the economy, speed the recovery along somewhat and help get unemployment moving towards its full employment goal over the next few years. I am concerned that we could be-- stalling at the current high level of unemployment.

STEVE LIESMAN: There's a lot of discussion about what form additional quantitative easing could take. Some-- folks have put forward this idea of a monthly or-- a meeting-to-meeting idea. Others are lump sum idea. And then also there's communications. Can you talk about those different-- concepts?


STEVE LIESMAN: And which ones you favored.

JOHN WILLIAMS: Sure. And, you know, in the past we've done what you called the lump sum. The announcement of $600 billion of purchases over a fixed period of time. I think that-- that-- that was-- that worked well at that time. Personally I think we should be moving towards what I call an open-- what we call an open ended approach.

Basically saying instead of here's a certain amount over a certain period of time-- that we will be-- purchasing assets at a certain rate. We continue-- we expect to continue to do that for some time. But then allow us to adjust both the rate at which we purchase and of the amount that-- which we purchase based on the economic conditions. I mean a basic principle good monetary policy is you adjust policy based on what's happening in the economy and the outlook. So the open ended approach allows you to do that better I think.

STEVE LIESMAN: It sounded like, judging from the minutes, that you guys were pretty close to extending the target or the-- the forecast period for low rates at the last meeting. And sort of said, "We'll revisit it in September." What's your feeling about that?

JOHN WILLIAMS: So my own view on this is based on my outlook and-- perspective on where-- where the economy's going. I don't personally think that we would be raising rates until-- probably sometime in mid 2015. So my own view is that if we're-- that the-- you know, we could-- you know, I would be willing to communicate out further. Right now we're at late 2014. I think-- my view on the communication of the forward guidance of policy is really based in, you know, my view of where policy should be given-- appropriate policy—


JOHN WILLIAMS: --for our goals.

STEVE LIESMAN: But there's been a lot of problems-- it sounds like one of those things that every-- like the weather-- everybody talks about it. Nobody does anything about it. That a lot of people don't like the calendar date. And-- are-- are you also considering whether or not there ought to be actual economic targets? 7% unemployment and 3%-- inflation is something that Charlie Evans has put forward.

JOHN WILLIAMS: So I-- I think-- I think most people-- I know for myself, but, you know, think a monetary policy should be responding to economic conditions. And I would-- really favor an approach that allowed us to communicate our-- you know, say the lift off-- in terms of economic conditions rather than a calendar date. That's harder to do than to say—


JOHN WILLIAMS: --and exactly what conditionality do you want to put on that in the s-- in-- say our communications is-- is hard to come up with something which we-- I think would be clear and effective. I still hope that we could come up with ways to do that. I think President Evans' ideas are good ones, but-- in terms of this, but we-- you know, we really need to come to an agreement about how to do that most effectively. And one of the dangers or one of the issues is if you just put out one number, the policy depends on one number, I don't think that's an accurate representation of our policy framework.

STEVE LIESMAN: And how you make policy. Right, right.

JOHN WILLIAMS: And how we make policy. I really want—


JOHN WILLIAMS: --our communication to more accurately represent how we think about policy-- and help guide-- people in understanding what we're doing and why.

STEVE LIESMAN: A lot of-- criticism out there among the general public about what the Federal Reserve is doing. That you're distorting interest rates-- and otherwise-- really fueling a tinderbox that could create inflation. Well, take the first part. What do you say to people when they say, "You know what? You've-- gone out well beyond your mandate. Just-- not-- not just setting the Fed funds rate, but really working in the two, five and 10 year-- bond rate, then distorting the market."

JOHN WILLIAMS: So I-- I don't think we're distorting the market. I think we're doing monetary policy-- as-- by slightly different means. As you know-- the short-term interest rate is essentially at zero. Normally we would be moving the Fed funds rate. We can't do that.

And-- the mechanism-- or it's always been that the Fed funds rate movements would affect other interest rates. So by moving more directly on those other interest rates I think we're doing what-- what mon-- monetary policy always does, but working in a world where the short-term interest rate's already at zero. So I don't view this as-- as-- as distorting markets or anything. I think of this as-- as doing monetary policy.

STEVE LIESMAN: The other one-- the other criticism that's out there is you are really-- hurting savers at the expense of borrowers. And you're plumping people to borrow when in fact what they really want to do is they want to de-lever.

JOHN WILLIAMS: Right. And I think that there is-- you know, fundamentally one of the things holding back the U.S. economy, obviously after the housing crash and the-- and the-- financial crisis, is that the household sector is trying to reduce their debt loads. And that's part of the process driving things.

I mean in-- in terms of-- savers-- and-- and borrowers, I mean I think that-- the best thing that can happen for both savers and borrowers is have a stronger economy. And if we can, through our actions, help stimulate growth, get the economy back to full employment sooner, a stronger economy is better for everybody.

I mean I-- and that-- I mean my hope is that by taking the actions that we've been taking and helping get the economy going we'll get back to normal interest rates sooner. If you think about what's happened in Japan for the last 20 years, they've been in a situation of extremely low interest rates-- deflation and a pretty stagnant economy. That's the one thing I really want to avoid.

STEVE LIESMAN: John Williams, thanks for joining us.


STEVE LIESMAN: Yeah, I'll see you next time in San Francisco hopefully.


STEVE LIESMAN: Okay. Kelly and Carl, back to you guys from-- Jackson Hole.

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