John Williams, president of the Federal Reserve Board of New York, said Friday that high prices for stocks and other assets are justified in light of a growing economy and low interest rate landscape.
As shares rose to new highs over valuations not seen in decades, and while corporate bond yields are declining, the central bank official said he was not worried about the current price.
“Market participants and investors around the world are looking ahead through this year and looking at an economy that will hopefully have a strong recovery and a strong expansion over the next few years, which will support stronger valuations,” Williams told CNBC ‘s Steve Liesman said during an interview on “The Exchange.”
The largest averages have managed to build on the 2020 profit, despite a nervous volatility.
Fed policies of low rates and continued asset purchases are often cited as a driving force in risky asset prices. Earlier in the day, the Fed’s biannual monetary policy report to Congress noted that “pressure on asset valuations in most markets has returned to or exceeded pre-pandemic levels, including the markets for equities, corporate bonds and real estate.”
Williams did not dedicate himself to a specific future course for the central bank, but he indicated that the area is likely to remain accommodating.
“I think the fundamental drivers are investors’ optimism that the US economy and the world economy will have a stronger recovery and expansion, an expectation of low rates into the future,” he said. “It will give you joint valuations for your assets.”
Williams also addressed the high levels of monetary and fiscal stimulus provided during the Covid-19 pandemic. He said he was not worried that policymakers were doing too much, despite an economy that earlier appeared to resist predictions for a slow start to 2021.
Treasury Secretary Janet Yellen, a former Fed chairman, told CNBC on Thursday that aggressive stimulus is still needed.
“Right now, the economy has quite a few ways to return to maximum employment, and we have a way to return to our 2% inflation target,” he said. “So I’m not really worried about the fact that fiscal support is excessive at the moment or something like that. What I really want to see is an economy that will be at full strength again as soon as possible.”