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Fed’s Williams Says Fed Is Striving to Get Economy on Track; Fiscal Effort ‘Essential’– 2nd Update

Federal Reserve Bank of New York leader John Williams said Thursday the U.S. central bank’s emergency-lending efforts during the coronavirus pandemic helped restore markets to health, adding that financial support for Americans will be essential to navigate the crisis.

“These actions to provide massive liquidity have proven successful,” Mr. Williams said in remarks delivered by video. “They restored market functioning and averted what could have been a much more severe pullback from markets and the flow of credit to households and businesses.” In the wake of these efforts, “we have seen a significant improvement in the pricing and availability of credit,” he said.

Mr. Williams, who also serves as vice-chairman of the interest-rate setting Federal Open Market Committee, didn’t offer any specific comments on future central bank policy actions.

“We are working tirelessly to address the economic damage caused by the coronavirus and to put the economy back on a path toward achieving our dual mandate goals of maximum employment and price stability,” he said.

After his formal remarks, Mr. Williams said “when I think about our monetary policy strategy and our actions over the next few years, you know, where our focus obviously needs to be is making sure that we can get back to a really strong, robust economy with sustainable, strong sustainable growth and inflation at our 2% goal.”

He also said it’s not time for the Fed to consider backing off on any of its efforts yet. “I don’t think today is a time to be focused on exit strategies. We’re still in the middle of a very difficult situation.”

The policy maker also said the broader government has an important role to play.

“Sound health-care policy and the ability of fiscal authorities to put cash directly in the hands of Americans are both essential for the economy to endure this devastating episode,” Mr. Williams said.

As the coronavirus pandemic took hold in the U.S. in March, the Fed has slashed its interest rate target to near zero, increased efforts to buy all manner of bonds and launched a number of emergency lending efforts, some in conjunction with the Treasury Department.

While the economy’s outlook remains mired in uncertainty as cases of the illness rise, financial markets have done well, and some have questioned whether that positive outlook squares with what’s happening in the economy.

Mr. Williams later appeared on Yahoo Finance’s website and said that while the U.S. economy was in a “deep hole,” he still expected to see positive economic momentum in the second half of the year, in a view shared by many Fed officials. But he added that emerging from the pandemic likely would be “a more drawn out process” than was once expected.

Some of the Fed’s emergency efforts have seen far less interest than expected. But for Mr. Williams, that’s a good thing.

“Somewhat paradoxically, despite the clear effect that these facilities have had on the availability of credit, actual take-up of the facilities has been relatively low,” Mr. Williams said in his speech. “But this is in fact a measure of success — the existence of the facilities, even in a backstop role, has helped boost confidence to the point where borrowers are able to access credit from the private market at affordable rates,” he said.

In comments made after his formal remarks, Mr. Williams pushed back on the idea that a significant rise in inflation might result from the central bank’s market interventions. “I see disinflationary pressures, at least right now, to be the predominant” risk on the inflation front relative to the Fed’s 2% target.
Source: Dow Jones

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