New York Federal Reserve Chairman John Williams said on Friday that the high prices of stocks and other assets are justified in light of the growth of the economy and the scenario of low interest rates.
With stocks reaching new heights in valuations not seen in decades, and with falling corporate bond yields, the central bank official said he was not concerned about current prices.
“Market participants and investors around the world are looking forward to this year and looking to an economy that, hopefully, will have a very robust recovery and strong expansion in the years to come, which would support stronger valuations,” Williams said. Steve Liesman of CNBC during an interview on “The Exchange”.
The main averages managed to take advantage of the 2020 gains, despite some stressful volatility.
The Fed’s policy of low rates and continuous asset purchases is often cited as a determining factor in risky asset prices. Earlier in the day, the Fed’s semiannual monetary policy report to Congress noted that “asset valuation pressures have returned to or exceeded pre-pandemic levels in most markets, including stocks, corporate bonds and residential real estate markets.”
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 investors’ optimism that the US economy and the global economy will have a stronger recovery and expansion, an 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 were provided during the Covid-19 pandemic. He said he is not concerned that lawmakers are doing too much, despite an economy that appears to be challenging previous projections of a slow start to 2021.
Treasury Secretary Janet Yellen, a former Fed chairman, told CNBC on Thursday that the aggressive stimulus is still needed.
“At the moment, the economy has a long way to go 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 fiscal support is excessive at the moment or something. Really, what I want to see is an economy that comes back to full force as soon as possible.”