The U.S. economy is showing signs of a turnaround as businesses reopen, but the pace of the recovery is being slowed by large-scale virus outbreaks in some states and it could be years before the economy is back at full strength, New York Federal Reserve Bank President John Williams said on Tuesday.
Increases in consumer spending and in building permits suggest that economic activity is improving in some areas and that the “low point” of the downturn may have passed, Williams said.
“People have been getting back to work and the unemployment rate has started to edge down,” Williams said according to remarks prepared for a virtual event focused on central banking during the pandemic. “Although this improvement is welcome, the economy is still far from healthy and a full recovery will likely take years to achieve.”
The Fed moved aggressively in March to support the U.S. economy by cutting rates to near zero, buying up trillions of dollars in bonds and launching a slate of emergency lending tools to keep credit flowing to households and businesses. The last of those programs, which the Fed can use to buy newly minted corporate bonds, launched on Monday.
During a moderated discussion on Tuesday, Williams said low use of the Fed’s facilities is a sign of success because it suggests markets are functioning well.
Asked about other tools the Fed could incorporate to set monetary policy, Williams repeated his view that negative rates are not a good fit for the U.S. economy. He said he views yield curve control as a tool that could complement forward guidance, but said Fed officials have not made any decisions.
Williams cautioned that the large-scale outbreaks happening in some states could slow the pace of the economic recovery.
“This is a valuable reminder that the economy’s fate is inextricably linked to the path of the virus,” he said.