New York Federal Reserve Chairman John Williams said Friday that high stock and other asset prices are justified in light of a growing economy and a low interest rate landscape.
Given the actions heading towards new heights in terms of valuations unseen in recent decades and as corporate bond yields decline, the central bank official said he was not worried about current prices.
“Market participants and investors around the world are looking forward to this year and looking for an economy that hopefully has a fairly robust recovery and strong expansion over the next few years, which would support stronger valuations,” Williams told CNBC’s Steve Liesman interviews The Exchange.
Major averages have managed to build on gains in 2020, despite some volatility.
The Fed’s policy of low rates and continued asset purchases is often cited as a price determinant for risky assets. Earlier in the day, the Fed’s six-month monetary policy report to Congress noted that “asset valuation pressures have returned to or exceeded pre-pandemic levels in most markets, including equity, corporate bonds and residential real estate.”
Although Williams has not pledged to take a course specific to the future of the central bank, he has indicated that the environment is likely to remain accommodative.
“I think the key determinants are the optimism among investors that the US economy and the global economy will have a stronger recovery and expansion, an expectation of low rates until the future,” he said. “The combined ones will give you high asset valuations.”
Williams also addressed the high levels of monetary and fiscal incentives that were provided during the Covid-19 pandemic. He said he was not worried that policymakers were doing too much, despite an economy that seemed to defy previous projections for a slow start to 2021.
Treasury Secretary Janet Yellen, a former Fed chairman, told CNBC on Thursday that an aggressive stimulus was still needed.
“Right now, the economy has quite a few ways to get back to maximum employment and we have a way to go to get back to our 2% inflation target,” he said. “So I’m not really concerned that tax support is excessive now or something. Indeed, what I want to see is an economy that returns to full power as soon as possible.”