Coronavirus will dictate U.S. economy’s path: Fed’s Williams

Coronavirus will dictate U.S. economy’s path: Fed’s Williams

October 8, 2020

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New York Fed President John Williams says that the outlook for the economy depends on the spread of the coronavirus and people's behavior containing the spread—the latest Fed official to stress that the outlook for the economy remains highly uncertain at the mercy of the virus.

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“This is not a standard recession and the economic future is inextricably tied to the spread of the virus, people’s behavior in containing that spread, and the development of vaccines and therapeutics,” Williams said.

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Williams underscored the Fed’s new approach to policy – linking raising interest rates and other policy actions like buying bonds to economic outcomes on employment and inflation –  allows the Fed to respond to changes in the economy as they happen.

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The head of the New York Fed’s comments come just as internal discussions amongst Fed officials at their policy meeting in September over how to communicate about setting future policy revealed differences. Several members of the central bank wanted to maintain current guidance on the Fed’s intentions.

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They didn’t feel further “enhanced forward guidance” – tying raising rates to certain levels on inflation or unemployment – was needed now or would do much good now given that long-term bond yields, which influence borrowing rates were already so low. They were also concerned leaving rates near zero could hurt their flexibility on policy and could lead to the build-up of financial bubbles that would make it hard to achieve stable prices and full employment.

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A couple of members wanted to do even more on forward guidance.

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