(Reuters) - The emergency lending facilities set up by the Federal Reserve to stabilize markets in the spring were successful and could be restarted later if needed after they expire at year end, New York Federal Reserve Bank President John Williams said on Tuesday.
“They have played and continue to play an important backstop role, but right now I think financial conditions are quite favorable,” Williams said during a virtual interview with the Wall Street Journal. “If we were in a situation where there was extreme volatility or concerns in those markets, we could deploy the appropriate tools.”
The Fed acted aggressively in the spring to keep money flowing through key credit markets by increasing the scale of its asset purchases, lowering interest rates to near zero and establishing a suite of emergency lending programs. Treasury Secretary Steven Mnuchin last week said that some of the programs supporting businesses, municipalities and the corporate bond market would expire at the end of the year.
The Fed’s bond purchases, which were initially intended to improve market functioning, are now playing a key role in supporting the economy, Williams said. “I think they’re serving their purposes really well right now,” he said, and could be adjusted if needed.
Asked about negative interest rates, Williams said they are an “option” but come with trade offs compared to other policy tools. “Negative interest rates obviously are a possible option but I think have less benefits relative to costs,” Williams said. “I would say the primary tools for policy” would continue to be forward guidance and asset purchases.
Williams also praised former Fed Chair Janet Yellen, who is expected to be nominated for Treasury Secretary by President-elect Joe Biden. “She’s an extraordinary person, she’s got amazing intellect,” Williams said. “As everyone says, she’s the most prepared person in the room.”
Reporting by Jonnelle Marte; Editing by Chizu Nomiyama
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