The US Federal Reserve’s decision to make unprecedented asset purchases to prop up the US economy was the right call, former US Treasury secretary Lawrence Summers said yesterday.
“On the question of whether the Fed stepping up and providing liquidity when no one else would was the right thing to do, I think historians are going to judge that about 98 to 2,” Summers said, speaking on Bloomberg Television with Stephanie Ruhle from the Robin Hood Foundation’s investors’ conference in New York.
Summers, 58, said he is a Democrat and is more interested in whether monetary policy benefited the middle class than Wall Street, while stock market gains have been a side effect of the asset purchases known as quantitative easing (QE).
“The primary consequence of QE is that we’ve avoided the bottom falling out of the economy in the way that it did when they didn’t do QE in 1930 and 1931,” said Summers, a Harvard University professor.
“As a consequence of saving the economy, has it been better for Wall Street? Yes, it has been. Is that a reason not to save the economy? I surely don’t think so,” he said.
Summers said he was not going to make a “precise judgment” on when bond buying should slow.
The US Federal Open Market Committee plans to press on with US$85 billion in monthly purchases until it sees substantial improvement in the outlook for the labor market.
While US employers last month added 204,000 workers, the Fed probably will not decide to taper its purchases until a policy meeting on March 18 and 19, according to the median of 32 economist estimates in a Nov. 8 Bloomberg News survey.
Summers also said that the economy lately has not shown an ability to grow without bubbles.
“It has been a long time since we have had rapid, healthy growth in the country,” Summers said. “That is not an argument for bubbles. That is an argument for changing the framework.”
Several emerging economies in Asia face a “key source of risk” in the eventual tapering of monetary stimulus in advanced nations, an IMF official said.
“Global growth is in low gear and downside risks persist,” IMF deputy managing director Zhu Min (朱民) said in prepared remarks for a conference in Port Vila, Vanuatu.
He did not specify which countries were at risk from the scaling back of QE policies that the central banks of Japan and the US have adopted.
“Advanced economies are recovering, but overall recovery is slow and is hindered by constraints on both the demand and the supply sides,” he said.
“Emerging markets are still in the lead, although they are slowing down from elevated levels in recent years,” he said.
Zhu added that economic expansion in emerging Asia is expected to reach 6.25 percent to 6.5 percent this year and next.