Federal Reserve Bank of San Francisco President John Williams, who has never dissented from a policy decision, said “it’s still too early” for the Fed to begin trimming its bond-buying, warning of risks to the economy from low inflation and government budget cuts.

“We need to be sure that the economy can maintain its momentum in the face of ongoing fiscal contraction,” Williams said in the text of remarks for a speech in Rohnert Park, California. “It is also prudent to wait a bit and make sure that inflation doesn’t keep coming in below expectations, possibly signaling a more persistent decline in inflation.”

Bonds and stocks have dropped since Chairman Ben S. Bernanke said on June 19 the Fed may dial down $85 billion in monthly bond buying this year and end purchases around mid-2014 should the economy perform in line with its forecast.

Williams, who doesn’t vote on policy in 2013, said on June 3 the central bank could start trimming its purchases as early as “this summer” if the economy continues to improve. The Federal Open Market Committee plans to meet July 30-31.

“Any adjustments to our purchase program will depend on the new economic data that come in,” the San Francisco Fed chief said. “Reducing or even ending our purchases does not mean the Fed will be tightening monetary policy. Not at all.”

The Standard and Poor’s 500 Index has slid since June 18, the day before Bernanke outlined the committee’s outlook for the asset-purchasing program.

Markets Reeling

With markets reeling, several Fed officials in the past week have emphasized that the central bank won’t begin tightening for some time. Atlanta Fed President Dennis Lockhart said investors may have misread Bernanke’s June 19 comments, adding that policy will stay accommodative.

“Market adjustments since May have been larger than would be justified by any reasonable reassessment of the path of policy,” Fed Governor Jerome Powell said in Washington.

Markets will probably remain volatile as policymakers debate when and how to curtail the so-called quantitative easing program, Richmond Fed President Jeffrey Lacker said in a speech in West Virginia.

Asset Purchases

The reaction by investors since Bernanke’s comments is “evidence that they had built in expectations of more asset purchases than I think the committee taken as a whole was anticipating,” Lacker told reporters after his speech. Recent asset price declines “should not be too surprising,” he said in his speech.

Williams said today he expects the unemployment rate to fall to 7.25 percent at the end of this year and to 6.75 percent by the end of 2014. Joblessness was at 7.6 percent in May.

Inflation will probably accelerate closer to the Fed’s 2 percent goal, to 1.75 percent in 2015 from less than 1.5 percent in the second half of this year, he said.

Investors have closely scrutinized comments by Williams, among the early backers of a third round of bond buying, after he raised the possibility of tapering the program. He had also favored an open-ended approach to the bond purchases, in which the Fed specifies neither the duration nor the total amount of buying.

While a voting member on the FOMC last year, Williams backed the beginning of the third round of assets purchases in September and the decision to expand the program to Treasurys in December.