By Michael S. Derby 

Federal Reserve Bank of New York President John Williams said Tuesday he is upbeat about the future of the U.S. economy, adding that he doesn't see notable risks going forward when it comes to financial stability.

Mr. Williams did warn, however, that a failure by the broader government to deliver more aid likely would cause the economy to grow more slowly over time.

"The recovery has actually been stronger, more robust than many were expecting," Mr. Williams said in a virtual appearance. "This ability to somehow keep the economy growing, despite the pandemic, despite the high number of [Covid-19] cases, it makes me optimistic that we'll be able to continue to see a pretty strong economic recovery for the rest of this year, into next year," he said.

Mr. Williams also said the unemployment rate, which started the year at 3.6% before rising to 14.7% in April then falling back to 8.4% in August, shows the economy is snapping back. A strong economy and full employment are attainable "in about three-years time," he said.

Mr. Williams, who also serves as the vice chairman of the rate-setting Federal Open Market Committee, didn't say what lies ahead for the central bank when it comes to setting monetary policy. But speaking with reporters after his remarks, he said that continued support from the government is important.

Over recent weeks, a range of central bank officials, from Chairman Jerome Powell on down, have flagged the critical nature of government support efforts, such as enhanced unemployment insurance and other forms of aid, in helping the nation navigate the disruptions caused by the pandemic.

Some key pillars of that support, such as upsized jobless benefits, have lapsed. Thus far, elected leaders in Washington haven't agreed to replace them, and it isn't clear any action will be taken with elections bearing down on Washington.

"If we do see more fiscal support, that will help improve, give a boost to the economy over the next year, or next six months, or a year. If we don't, that's going to be a somewhat weaker outlook," Mr. Williams told reporters after his virtual appearance.

But Mr. Williams doesn't see more fiscal policy assistance as a make-or-break proposition. The economy "is on a pretty good trajectory. So it's just really a matter of, if there's more or less fiscal policy, that maybe tilts that trajectory, more or less."

Mr. Williams declined to say if the Fed would need to provide more aid or how that would happen if it decided it do so. Short-term rates are at near zero, the Fed is buying substantial amounts of bonds and has a number of emergency lending facilities in place, and bond yields are low, raising questions about how much more the Fed could bring to the table.

Mr. Williams said the rate guidance strategy announced at the last FOMC meeting gives the Fed space to adjust policy as needed. But he wouldn't predict what the Fed will do with its policy right now.

In his appearance, Mr. Williams was sanguine about the state of the financial sector. "I don't personally see a lot of signs of, obvious signs of, excessive risk taking generally in the economy," he said, adding "it's not clear to me that the high level, the relatively high levels of debt are creating that much risk to the economy."

Mr. Williams' comments followed the release of an essay earlier in the day by Dallas Fed leader Robert Kaplan. He cast a dissenting vote against the Fed's new rate guidance because of worries it would limit the central bank's flexibility down the road, while at the same time increasing the chances of financial instability.

Although Mr. Kaplan favors keeping rates near zero into late 2022 or some time in 2023, he said there were "real costs to keeping rates at zero for a prolonged period. Keeping rates at zero can adversely impact savers, encourage excessive risk taking and create distortions in financial markets."

Philadelphia Fed chief Patrick Harker also spoke in a separate appearance. "I expect this recovery to continue," he said, "though not fast enough that, by the end of this year, GDP will have returned to where it was before the pandemic struck." Mr. Harker also said more fiscal support is key, adding that he "would urge lawmakers to consider providing additional support soon."

Write to Michael S. Derby at michael.derby@wsj.com

 

(END) Dow Jones Newswires

September 29, 2020 17:21 ET (21:21 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.