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New York Federal Reserve Chairman John Williams said on Friday that the high prices of stocks and other assets are justified in light of a growing economy and a low interest rate landscape.
As stocks hit new highs with valuations not seen in decades and corporate bond yields fall, the central bank official said he was not worried about current prices.
“Market players and investors around the world are eyeing this year and looking at an economy which will hopefully experience a fairly robust recovery and strong expansion over the next few years, which would support stronger valuations,” Williams told CNBC’s Steve Liesman during an interview on “The Exchange”.
The large averages have managed to build on the 2020 gains despite agonizing volatility.
The Fed’s policy of low rates and continuous asset purchases is often cited as a determining factor in the prices of risky assets. Earlier today, the Fed’s semi-annual monetary policy report to Congress noted that “pressures on asset valuations have returned to or exceeded pre-pandemic levels in most markets, including equity markets,” corporate bonds and residential real estate “.
While Williams has not made a commitment to follow a specific future direction for the central bank, he indicated that the environment will likely remain accommodative.
“I think the fundamental drivers are optimism among investors that the US economy and the global economy are going to have a stronger recovery and expansion, expectation of low rates in the future,” he said. . “These combined will give you high asset valuations.”
Williams also addressed the high levels of monetary and fiscal stimulus that have been provided during the Covid-19 pandemic. He said he is not worried that policymakers are doing too much, despite an economy that appears to be defying previous forecasts for a slow start until 2021.
Former Fed Chairman Janet Yellen told CNBC on Thursday that an aggressive stimulus was still needed.
“Right now the economy has a long way to go to get maximum employment back and we have a way to get back to our inflation target of 2%,” he said. “So I’m not really concerned that the tax support right now is excessive or anything like that. Really, what I want to see is an economy that regains full strength as soon as possible. “
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