–Blanchard: Forecasts US GDP ‘A Bit Below’ 2% for 2012
By Chris Cermak
WASHINGTON (MNI) – IMF Chief Economist Olivier Blanchard Monday
said the Federal Reserve sent the “right message” by pledging to keep
interest rates exceptionally low through 2014, but suggested it should
have made rates contingent on the economy rather than a specific
timeframe.
Blanchard also said he now forecasts U.S. economic growth for 2012
at “a bit under” 2%, slightly higher than the International Monetary
Fund’s forecast of 1.8% in last month’s World Economic Outlook update.
Speaking at the Carnegie Endowment for International Peace,
Blanchard based his improved U.S. forecast on recent positive economic
data, especially on unemployment, but said he still expects a recovery
that is “mediocre at best” over the coming years.
The Federal Reserve’s decision to keeping the federal funds rate
extremely low until at least 2014 is “the right message,” Blanchard
said, but “whether it should be framed as a message of time … I think
is something that can be discussed.”
Blanchard said he “would have preferred” if the Fed had made its
monetary policy more contingent on the economic situation, which in any
case warrants keeping rates low until 2014.
Blanchard said both the Federal Reserve and European Central Bank
had “no choice” but to keep interest rates low for the time being. He
suggested the Fed should consider adopting a nominal GDP target, which
had “basic advantages” by combining concerns about growth and inflation.
Blanchard said he is not worried about loose monetary policy
raising inflation in the U.S. or in other advanced economies, arguing
central banks had the tools to reduce their balance sheets when needed.
Blanchard said in the longer run the U.S. will have to find
something that could in part replace consumer demand as a driver of
economic growth, as the housing sector will remain weak and households
will remain focused for a while on boosting savings.
The solution had to be reducing the U.S. current account deficit,
he said.
“We don’t want consumers to return to their old ways … and so it
has to be net exports,’ Blanchard said.
** Market News International Washington Bureau: 202-371-2121 **
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