Christina Romer Upbeat on Economy

Christina Romer, chair of the the US president’s Council of Economic Advisers, who is also a scholar of the depression, warned today against tightening monetary and fiscal policy before recovery is well established. “We do not want to repeat the mistake Japan made in the 1990s, when the moment things started to improve…” she told the Financial Times in an interview. Here are some more excerpts from Romer’s FT interview:

Ms Romer said stimulus spending was “going to ramp up strongly through the summer and the fall”.

“We always knew we were not going to get all that much fiscal impact during the first five to six months. The big impact starts to hit from about now onwards,” she said.

Ms Romer said that stimulus money was being disbursed at almost exactly the rate forecast by the Office of Management and Budget. “It should make a material contribution to growth in the third quarter.”

But she acknowledged that cutbacks by states facing budget crises would push in the opposite direction.

Ms Romer said the latest economic data were encouraging, following a weaker patch a month ago. “I am more optimistic that we are getting close to the bottom,” she said.
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But she added: “I still hold out hope it will be a V-shaped recovery. It might not be the most likely scenario but it is not as unlikely as many people think.

“We are going to get some serious oomph from the stimulus, there is the inventory cycle and I believe there is some pent-up demand by consumers.”

Ms Romer’s comments come as opposition on the $787 billion fiscal stimulus intensifies. Many critics are pointing out that it has not prevented unemployment from hitting a quarter-century high of nearly 10%.

Ms Romer indirect response is: “we always knew we were not going to get all that much fiscal impact during the first five to six months. The big impact starts to hit from about now onwards….It should make a material contribution to growth in the third quarter.”

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