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Fed's John Williams: recovery has achieved "liftoff"

CHICAGO (Reuters) - The pace of economic recovery has reached "escape velocity" from the worst recession in decades, though the nation may not return to full employment until 2014, a top Federal Reserve researcher said on Friday.

But John Williams, the San Francisco Fed's head of research, said in remarks prepared for delivery at Stanford University that it was still too soon to celebrate.

"Even though we have achieved liftoff, we are by no means rocketing to the moon," he said. While current economic growth rates are "respectable and improving," he said, the recession slashed output so deeply that it still has a long way to go.

"The economy still has enormous slack," Williams said. "Millions of people could be put back to work and many more goods and services could be produced without igniting unwelcome inflation."

Williams' remarks are in step with those of Fed Chairman Ben Bernanke, who on Thursday acknowledged the economy is gaining strength, even as he stressed it still needs plenty of support from the Fed.

The U.S. central bank has slashed short-term interest rates to near zero and is buying billions of dollars of Treasury securities to push borrowing costs still lower.

Williams, whose name has been floated as a potential replacement for former San Francisco Fed President and now Fed Vice Chair Janet Yellen, defended the Fed's policies, saying that without them the recovery may never have been able to escape the drag of the recession.

Williams offered an upgraded assessment of the U.S. economy, projecting gross domestic product growth of 4 percent this year and 4.5 percent next year. The projections are at the top end of what most Fed officials forecast last November.

He also sees the jobless rate falling to below 9 percent this year and to about 7.5 percent by the end of next year -- again a rosier view than the central tendency forecasts from Fed officials last November.

Fed officials delivered fresh projections at the Fed's January 25-26 policy-setting meeting, but they will not be made public until February 16.

Government figures on Friday showed the unemployment rate fell in January to 9 percent, its lowest since April 2009, but also showed employment rose by a meager 36,000 jobs.

The Fed has "rightfully" focused on the unemployment side of its double mandate, Williams said.

As for inflation, which the Fed is also charged with keeping under control, "my concern is not too much inflation, but rather too little."

(Reporting by Ann Saphir; Editing by Padraic Cassidy)

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