Federal Reserve Bank of San Francisco President John Williams said the central bank will probably buy about $85 billion in bonds per month starting in early 2013 and continue purchasing securities well into the second half of the year.

“I expect it will be some time until the job market makes substantial progress towards our congressionally mandated maximum employment goal,” Williams said Wednesday in a speech in San Francisco. “I anticipate that we will need to continue our purchases of mortgage-backed securities and longer-term Treasury securities past the end of this year and likely well into the second half of next year.”

A number of Fed officials said the central bank may need to expand its monthly bond purchases after the expiration in December of a program known as Operation Twist that swaps $45 billion of short-term Treasurys on its balance sheet each month for longer-term debt, minutes of the Federal Open Market Committee’s Oct. 23-24 meeting showed Wednesday. The FOMC in October voted to keep buying $40 billion in mortgage bonds per month to spur the job market.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

The Fed will probably need to buy mortgage bonds and Treasurys early next year “at the same rate” it is purchasing now, while halting the sale of shorter-term holdings when Operation Twist expires, Williams told reporters after the speech at the University of San Francisco.

The Standard & Poor’s 500 Index extended declines after release of the Fed minutes, falling 1.4 percent to 1,355.49 in New York Wednesday. The yield on the benchmark 10-year Treasury was little changed at 1.59 percent.

Bond Holdings

The FOMC is next scheduled to meet Dec. 11-12, shortly before the expiration of Operation Twist. Williams was among the first Fed officials to advocate a bond-buying program without a fixed duration or total amount, a step the central bank took in September.

Williams said that he wants to see more than 200,000 jobs created every month over a sustained period before the Fed ends its latest round of quantitative easing.

In response to a question from the audience, Williams said he doesn’t believe that the Fed’s policies are producing diminishing returns. The central bank’s stimulus may now have more impact than a year ago because the housing market has improved, he said.

Fed officials in October also discussed whether to link their policy holding the main interest rate at zero to measurements of unemployment and inflation instead of a calendar date, according minutes of the gathering.

Specify Thresholds

Participants “generally favored” specifying these thresholds over the current approach of setting a time period, minutes of the October meeting said. The FOMC currently expects to keep rates low through mid-2015.

Vice Chairman Janet Yellen on Nov. 13 endorsed linking the zero-rate policy to economic thresholds, joining Chicago’s Charles Evans, Minneapolis’ Narayana Kocherlakota and Boston’s Eric Rosengren.

Williams, who is a voting member of the FOMC this year, said yesterday he is “wrestling” with the best way to communicate the Fed’s intentions on its monetary policy.

A numbers-based approach may risk leading the public to believe the Fed will tighten as soon as the unemployment or inflation thresholds are met, he said, adding that a broad set of data would be needed to accurately size up the economy.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans