The U.S. recovery from the coronavirus-linked recession has been more robust than expected, a top Federal Reserve policymaker said on Tuesday, though he added it could be about three years before the economy regains its full strength.
“We want to get back to maximum employment as soon as possible,” New York Fed President John Williams said, adding that the economy would be strong and close to full employment “in about three years time.”
Still, he added, “there’s clearly a lot of unknowns” about the next few years.
Lack of fiscal support could also weaken the recovery, Williams told reporters after the event. “I do think the economy is on a pretty good trajectory so it’s really a matter of if there’s more or less fiscal policy that maybe tilts that trajectory,” Williams said.
The potential development next year of a vaccine or other treatments for the virus will be important in helping consumers feel comfortable with engaging in social activities, and more fiscal support will be needed to help get consumers and businesses to that point, Williams said.
It will also be important to watch state and local governments since budget restrictions contributed to slowing the recovery during the last expansion, he said.
Asked about the Fed’s inflation target, Williams said the central bank will need to temporarily aim above its 2% target to make up for periods when inflation is lower than desired. It will also need to be flexible in its approach, he said.
“We need to make sure that we’re purposely overshooting that moderately for some time to get that balance,” Williams told reporters. “To me, success is not some arithmetic or some formula but it’s really this notion of inflation expectations, how people think about what’s inflation going to be in the future.”