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Interview: David Stockton

Oct. 29, 2013

As investors around the world look for clues about when the US Federal Reserve will scale back its stimulus program, policymakers at the central bank are meeting to decide their next steps.
David Stockton served as the Fed's chief economist, and is now a senior fellow at the Peterson Institute for International Economics.
Stockton spoke with NHK WORLD's Reiko Sakurai about what to expect.

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David Stockton

Peterson Institute for International Economics

Another FOMC meeting is coming up very soon. Is it fair to think that we shouldn't expect to hear anything new from the Fed within this year?

So, I certainly think it's very, very unlikely that the Fed does anything at the October FOMC meeting, though simply, the data that they've seen will not be looking very promising. And I think they are likely not to want to move at that point in time.I think March is looking more likely as the first time, of the first tapering. Of course, that will be Janet Yellen's first meeting to chair the FOMC.So I think that the thing they are looking for is clear evidence that the labor market is continuing to improve, and that the pace of economic activity in United States is picking up. I think that's really what they want to see, and obviously, they're balancing that against the potential for some financial stability concerns, if they stay easy too long. But I don't think they've seen enough evidence that there are really significant financial imbalances, at least in the United States at present, to cause them to want to prematurely begin to tighten. So I think, more likely, they'll wait until March.

Now, the debt ceiling issue may come up early next year. Do you think this would be a distraction for the new chair, Yellen?

I think, for one, one would certainly hope, it's been a rather sad spectacle here in United States, watching fiscal policy developments over the last month or so. We needlessly inflicted considerable pain on the economy for the fourth quarter this year with absolutely nothing to show for it. I do think that is likely the failure of those confrontations to produce any positive result makes it less likely that we get into the same kind of conflict we saw here in October of this year. So I think it's less likely be to be a factor early next year than it was in the Fed decision not to taper in September. Unless the congress once again, pursues a completely reckless path, I don't think that's going to be a stumbling block for the Fed to begin to taper in the early part of next year.

So what are the remaining risks for the US economy?

We've had a very huge amount of fiscal restraint on activity over the course of 2013. And that is likely to lessen as we move into 2014, and we ought to see some pick-up. But it's still the case that businesses remain very cautious. I think households, as well, certainly remain cautious; income growth hasn't been very swift. So I think domestically, there's certainly risk. And of course, internationally, there are risks as well. Europe, well it certainly seems to be out of its most acute portion of the crisis, still constitutes a drag on the global economy. And while China's looked better of late, and that's certainly been encouraging, there're risks as well.The most important thing the United States can do for the global economy at this point is to generate a more vigorous recovery here in the United States, and I think that will have positive spillovers for the rest of the world. And anything that we do such as the fiscal turmoil that we had this year, the earlier premature talk of Fed tapering, are things that slow the US economy and I just think that's not good for the global economy.

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