The US economy is making progress and should hit about 3 per cent growth this year, said the former chairman of the Federal Reserve, speaking in Abu Dhabi on his first public appearance since leaving the central bank.
Ben Bernanke said supportive fiscal policy, combined with strengthening consumer spending and a recovering housing market, would help to buoy the economy.
“We have seen some progress,” said Mr Bernanke, who stepped down as chairman at the start of last month. “Over the last half of 2013 the US economy grew about 3 per cent, a little more. The question is will we see that this year, and I think there’s a good chance we will.”
During his eight-year tenure as chairman of the Fed, Mr Bernanke was charged with stabilising the US financial system against the biggest shock since the Great Depression. One of his final acts as chairman in January was to oversee the start of the trimming of the Fed’s bond purchases, a scheme launched in late 2008 in an effort to stimulate the economy.
His successor, Janet Yellen, said last week that the central bank would reduce asset purchases at a “measured” pace, with the programme likely to stop in the autumn. She also reiterated her commitment to keep the benchmark interest low at least as long as unemployment remained above 6.5 per cent and inflation did not flare above 2.5 per cent.
“Looking forward to 2014, it appears fiscal policy will be post neutral and that will be helpful,” said Mr Bernanke during the Global Financial Markets Forum at the Emirates Palace. “The effect of the financial crisis is waning so household balance sheets are much stronger, consumer sentiment is up so consumers will be stronger. Lastly, the housing factor, which was a big part of the slowdown, is showing signs of recovery.”
Speaking at the same event, Lawrence Summers, a former US treasury secretary, said the US economy had been expanding below its potential.
“It’s been more than four years since the Tarp [troubled asset relief programme – offered to struggling banks] money was marginally repaid back [and] since credit spreads largely normalised, and the economy has not grown as rapidly as the potential over that interval. So we’ve been waiting for the reacceleration of growth. We’re not quite there yet,” said Mr Summers, who was also considered last year as a potential successor to Mr Bernanke.
The rebounding health of the US and to a lesser extent other advanced economies including Japan and Europe is in contrast to fresh turmoil buffeting many emerging markets.
Emerging market economies, especially those of the so-called fragile five – Brazil, India, South Africa, Turkey and Indonesia – have been hit because of growing current account deficits and lacklustre growth. Political instability and the paring of Fed stimulus has also been blamed for the battering that emerging market assets have taken in recent months.
The Arabian Gulf economies, which have current account surpluses and currencies pegged to the dollar, have remained resilient to the rout in emerging market stocks and currencies.
“I think it’s going to be difficult for emerging markets … to flourish in an environment in which it is not easy in the industrial countries,” said Mr Summers.
Mr Bernanke said that some emerging markets were under stress but that much depended on how reform progressed in China.
“To an increasing extent, China is becoming so important to emerging markets, both as an emerging market and because of its relationship with other [emerging markets], so it’s important to watch closely the reforms to try to reduce increase dependence on domestic demand,” he said.
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