John Williams, president of the New York Federal Reserve, said on Friday that high prices for stocks and other assets are justified in the face of a growing economy and low interest rate landscape.
With stocks pushing to new heights on valuations not seen in decades, and as corporate bond yields plummet, the central bank official said he is not concerned about current prices.
“Market participants and investors around the world are looking ahead this year and looking at an economy that will hopefully have a pretty robust recovery and strong expansion in the coming years, which would support stronger valuations,” Williams told CNBC’s Steve Liesman during a interview on “The Exchange.”
Major averages have managed to build on 2020 gains, despite a nerve-wracking volatility.
The Fed’s policy of low interest rates and continuous asset purchases is often cited as a driving factor in the prices of risky assets. Earlier in the day, the Fed’s semi-annual monetary policy report to Congress noted that “pressures on asset valuations have returned to or above pre-pandemic levels in most markets, including in equity, corporate bond markets. and homes. “
Although Williams did not commit to a specific future course for the central bank, he indicated that the environment is likely to remain accommodative.
“I think the fundamental drivers are investor optimism that the US and global economies will have stronger recovery and expansion, and an expectation of low interest rates well into the future,” he said. “These combined ensure high asset valuations.”
Williams also addressed the high levels of monetary and fiscal stimulus delivered during the Covid-19 pandemic. He said he is not concerned that policymakers are doing too much, despite an economy that appears to be defying previous forecasts for a slow start to 2021.
Treasury Secretary Janet Yellen, a former Fed chairman, told CNBC on Thursday that aggressive stimulus measures are still needed.
“Right now, the economy has quite a few ways to get back to maximum employment and we have a way to get back to our 2% inflation target,” he said. “So I’m not really worried that the fiscal support is excessive now or anything like that. What I really want to see is an economy that gets back to full strength as soon as possible.”