WHEN: Today, Friday, April 17, 2020
WHERE: CNBC’s “
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with New York Federal Reserve President John Williams and CNBC’s Steve Liesman on CNBC’s “Squawk Box” (M-F 6AM – 9AM) today, Friday, April 17th. The following is a link to video of the interview on CNBC.com:
All references must be sourced to CNBC.
STEVE LIESMAN: Becky, thanks very much. I’m pleased to be joined by John Williams, the President of the New York Federal Reserve Bank which is really on the frontlines of a lot of the Fed’s response doing the buying and selling and managing a lot of these programs. Good morning, President Williams.
JOHN WILLIAMS: Good morning, Steve.
STEVE LIESMAN: I’m going to start out in a way that was different from how I thought because this morning, John, there’s an air of optimism in the air. The market’s up. The President is announcing a plan to open the economy. There’s a new drug that everybody is excited about. I’m wondering, from an economic point of view, as you look ahead, do you share that optimism now? Are things looking better than you had originally forecast?
JOHN WILLIAMS: Well, this is a rapidly evolving situation and every day, there’s new developments. We try to – we obviously stay on top of that. I still think, you know, we have a lot of economic pain that we’re experiencing today, and that’s likely to continue for some time as these necessary measures that have been taken to limit the spread of coronavirus that continue to hold down the economy. Although I’m hopeful about the eventual bounce back to the economy and the recovery and getting the economy back to full strength, I still think we have some tough days ahead. And that’s why we’re working so hard to support the economy during this difficult period.
STEVE LIESMAN: I want to get to those in a minute. But now, I’m going to start where I was going to normally start, which was yesterday’s jobless claims number, cumulative, John, of 22.5 million over the past several weeks since March 7th. And I don’t think that’s the surprise or really different from what was expected. But I’m wondering, how much when you look at those numbers, do you believe are temporary and can come back very quickly? And what are you thinking about in terms of lasting damage to the economy from this shutdown?
JOHN WILLIAMS: Right. That’s the critical question. Right now, we are seeing the immediate effect that the restrictions and social distancing that have been put into place and that’s shutting down whole sectors of the economy, obviously, hospitality, travel, retail, a lot of areas of the economy have essentially shut down in recent weeks. And that’s why we’re seeing this enormous increase in unemployment, declines — declines in employment, declines in income. So, I think that is, like you said, the predictable part of this. In terms of looking ahead, you know, we’re watching the data very carefully using a lot of big data and other analytics and not coming to any firm conclusions about how long this will last. And we’re acting in every way we can and doing our utmost to support the economy, however this evolves over the next few months. In terms of lasting damage, I think that’s a key – a critical question. One of the things that we’re hearing a lot from business contacts and leaders in the community is our concerns that even as the pandemic passes, even as the restrictions are relaxed gradually over time, people may take quite a while before they’re willing to get back on airplanes or trains or go to the theater or go to concerts and things like that. So, I think there are some risks that it takes longer to get that recovery for the economy than just what happens in terms of the formal restrictions that are in place. One of the things that, you know, we’re very focused on is making sure that businesses and households can get through this period, and that’s what this is about, is making sure credit is flowing and making sure that otherwise healthy businesses can get through this period and be in a good position that once the restrictions are lifted, once the pandemic’s over, they can start their businesses up as fast as possible and get the economy back to full strength.
STEVE LIESMAN: John, Wall Street has a pretty good consensus on an atrocious second quarter but strong rebound in the third quarter. Is that your base case?
JOHN WILLIAMS: Well, definitely we’re seeing, you know, horrible data for the second quarter. We’re already seeing that data, obviously in regional sales, in unemployment and other indicators. So that I agree with in terms of a bounce back, I do think that as we see – when restrictions are relaxed, gradually over time, based on what’s happening with the coronavirus, we will see a return to certain sectors of the economy. In particular, I see construction, which has been hit really hard and it is very important obviously for our economy here in New York, I expect that to be able to bounce back a bit, more quickly than other sectors. I don’t see the economy being back to full strength by the end of the year. It’s going to take us longer to get us back to where we want to be.
STEVE LIESMAN: John, let’s talk about the programs you have in place. The immediate concerns of the Federal Reserve were the Treasury market and the mortgage market and some of the overnight credit markets. Do you feel like those have calmed down? Do you feel like you have a handle on them to the extent where they’re functioning more normally now?
JOHN WILLIAMS: Well, you’re right. That isn’t where we started. Because when the pandemic really started to spread and market participants were, you know, getting more concerned about the economic impact and the uncertainty about that, we saw that enormous tidal wave of money moving from riskier assets and from around the globe into shorter-term safe assets. And the financial system in a way was overwhelmed by that flow of money, and that’s why we saw the illiquidity and some market functioning issues. And what’s really the cornerstone of the global financial system, that’s the U.S. Treasury securities market, and that’s where we intervened most frequently and in enormous scale, in terms of our buying U.S. Treasuries, securities, mortgage-backed securities, and agency commercially backed securities. That was our initial, where we saw signs of concern and we acted promptly and decisively. We have seen significant improvement in liquidity and market function in those critical sectors. And, you know, my view is if you don’t get those healthy, then it’s impossible to make sure that credit is flowing more generally. So, that’s where we were focused initially. I think those efforts have been successful. We’re still purchasing. But, you know, as we’ve seen, we’ve cut back on the purchases because we’ve seen improvement in those markets. So, we’re seeing liquidity and functioning improving there. We’re seeing it spill over into other markets. And whether it’s the money market, commercial funds, commercial paper and even corporate bond markets. So, now that we’ve seen, I think, a return to, you know, more stable and better functioning core financial markets, that’s helping all of the markets I think function better. Of course, we have got other programs that are really to support them and support credit flow.
STEVE LIESMAN: Yeah. John, I want to talk about those other programs. There’s two in particular that have raised some criticism about the Federal Reserve. The first one is the Main Street Lending Program. An editorial in “The Journal,” actually, two editorials in “The Journal” today, that criticized the Federal Reserve for being too tough on the people who are borrowing not having enough money, not taking enough risk with the Treasury’s money and, of course, involving the banks and it’s going to be too slow to get up and running. What are your responses to that?
JOHN WILLIAMS: I do see the Main Street Program as really an essential part of our approach and the Federal Reserve working with the U.S. Treasury, providing support for the economy and making sure credit is flowing, especially with the small and medium-size businesses. I think it complements the CARES Act, SBA, PPP program and obviously complements our efforts at more broader market functioning and functioning in terms of the large business markets, like the corporate bond market. You know, we are very focused at the Federal Reserve in making sure that this program gets credit flowing immediate, as soon as possible, that it’s hitting the businesses that need it the most and really is done it at scale that addresses the issues that businesses across the country are facing and will face for the next few months. Clearly, we’ve made an initial announcement at the Federal Reserve around this program. We — the Federal Reserve also asks for comments and we’re getting a lot of feedback and comments from a variety of stakeholders, businesses, non-profits, and banks to help us make that program as effective as possible. And we’re committed to getting this right and committed to getting this out into the market as soon as we can.
STEVE LIESMAN: John, thanks for joining us this morning. John Williams, the President of the New York Federal Reserve Bank. Joe, back to you from my bureau, where the bureau chief has declared Friday a no tie day.
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