Fed's Williams Upbeat On Outlook, Says More Fiscal Aid Would Help
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
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
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
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
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 email@example.com
(END) Dow Jones Newswires
September 29, 2020 17:21 ET (21:21 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.