Increased federal deficit not a problem for U.S. economy, NY Fed chief says
John C. Williams, left, president of the Federal Reserve Bank of New York, joins a virtual event on Wednesday with his predecessor William Dudley, right. Credit: Newsday/James T. Madore
The higher federal budget deficit caused by trillions of dollars in coronavirus relief for workers, the unemployed and small businesses doesn’t pose a threat to the U.S. economy, New York’s top banker said Wednesday.
John C. Williams, president of the Federal Reserve Bank of New York, said the virus-induced recession would be worse if many Americans hadn’t received stimulus payments, additional jobless benefits or low-interest loans for businesses with 500 or fewer employees.
He lauded the CARES Act, Paycheck Protection Program loans and other federal programs adopted by Congress and signed into law by President Donald Trump as the pandemic ramped up in the spring. “The enormous fiscal actions have been absolutely essential to keep people able to pay their bills, stay in their homes and help small businesses get through this extraordinarily challenging time,” Williams said during a virtual event organized by The Bretton Woods Committee, a Washington nonprofit that promotes international cooperation on economic and financial issues.
Increased federal spending in response to COVID-19, he said, “doesn’t concern me in terms of long-term fiscal health because this is exactly what you need to do in situations like this, to provide support [for people and businesses] in a disaster.”
The federal budget deficit totaled $2.8 trillion as of July 30 for the fiscal year ending on Sept. 30. The red ink soared in April, May and June as Uncle Sam spent more than was collected in taxes. In June, the deficit hit $864 billion, or just below the 2019 fiscal year deficit of $985 billion, according to the U.S. Department of Treasury.
The 2020 deficit will total $3.3 trillion, or more than triple the 2019 deficit, according to a projection released on Wednesday by the Congressional Budget Office.
Still, Williams said the cost of government borrowing is manageable because interest rates have been low for some time.
“Over the past few decades, there has been a cyclical decline in interest rates…I’m not really concerned given where we are today about the cost of government finance,” he said during the hourlong event moderated by William C. Dudley, Williams’ predecessor as New York Fed chief.
Williams didn’t say whether additional stimulus checks and loans are needed, though Federal Reserve chairman Jerome Powell has said deficit worries shouldn’t stop Congress and Trump from injecting money into the economy to spur consumer spending. Congress deadlocked last month over a new coronavirus-relief bill.
Polls show less concern about the federal budget deficit than two years ago.
In a nationwide survey of more than 4,700 adults on June 16-22, 47% said the deficit was “a very big problem in the country today." That compares with 55% on Sept. 24-Oct. 7, 2018, according to the nonpartisan Pew Research Center in Washington, which conducted both surveys.
James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.
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