The U.S. economy will get a substantial boost from the Obama administration’s emergency spending package over the next few months, said Christina Romer, who heads the president’s council of economic advisers.
“We are going to get some serious oomph from the stimulus,” Romer told the Financial Times. “The big impact starts to hit from about now onwards. It should make a material contribution to growth in the third quarter.”
Romer, who has warned against tightening monetary and fiscal policy before a recovery is well established, said she’s now “more optimistic” the economy is close to stabilizing.
“It is important to think about it now but policymakers should not start acting until we are really recovering well and are approaching full employment,” she said.
Romer said stimulus money was being disbursed at almost exactly the rate projected by the U.S. Office of Management and Budget.
An expert on monetary policy, she thinks the risk of inflation is “very low”.
“With unemployment and unused capacity high, it is not as if inflation is going to creep up on us,” she said. “We will have a long period of time to figure out what to do.”
The clear and present danger, now and for the next year or two, is deflation, said economist Alan Blinder.
“Using the 12-month change in the Consumer Price Index as the measure, inflation has now been negative for three consecutive months,” Blinder wrote in The New York Times.
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