The U.S. Federal Reserve's latest
round of quantitative easing, or QE3, was a natural step that would
have a "pretty modest effect" both for the United States and the
global economy, Bruce Kasman, chief economist of J.P. Morgan, said
here Tuesday.
"QE3 does put some downward pressure on U.S. currency value, some
modest upper pressure on inflation expectations, which probably
supports commodity prices, and perhaps some modest effect in
increasing U.S. demand," Kasman told Xinhua.
At the September policy meeting of the Federal Open Market
Committee, the Fed unveiled the third round of quantitative easing,
an open-ended bond-buying plan to purchase agency mortgage-backed
securities at a pace of 40 billion U.S. dollars per month.
The U.S. central bank also decided to keep its ultra-low federal
funds rate unchanged at least through mid-2015, a half-year
extension from its earlier commitment.
Kasman said the easing policy "is not likely to be a powerful
step in terms of providing significant additional support for the
economy."
"I don't think it's going to be a dominant force in terms of
driving either the U.S. or Chinese outlook over the next year," he
said, noting that it was a natural next step for Fed policy.
Unlike QE1 and QE2, QE3 bought more assets, and it did so more in
line with a signalling change in its reaction function that was more
committed in keeping rates low -- even as the labor market improves -
- and more tolerant of some rising inflation, he said.
The economist predicted the United States would probably have
another three or four years to go before getting the employment
right back to its previous levels.
"Our view on the U.S. economy right now is that there are fairly
important and positive things happening in the private sector,"
which was now capable of generating growth well above 3 percent, he
said.
But an intensified fiscal drag was expected in 2013 and thus the
economy overall would only deliver lackluster growth of around 2
percent, he added.
With the U.S. presidential election coming in two weeks, Kasman
said, the first and most important topic would be how to deal with
the so-called "fiscal cliff."
The dreadful term, which refers to predicted massive spending
cuts and tax increases starting Jan. 1, 2013, has stirred up worries
among many economists.
"Our baseline view is, whether (Republican candidate Mitt) Romney
is elected or (President Barack) Obama is re-elected, the agreement
will be formed to extend a large part but not all of the fiscal
cliff items, most notably the Bush tax cuts," he said.
"And that will still give the U.S. a fairly large fiscal drag
next year, but not one that will threaten the economic recovery," he
said, adding that he believed tax reform was going to be the main
item of debate next year on the U.S. policy.
According to Kasman, the U.S. economy would grow at a similar
pace next year, and trade between China and the United States would
continue to develop and would see imports from China expand as has
been the case consistently.
On the Chinese economy's deceleration, Kasman said it has already
stopped slowing and the adjustments of expectations to a slower
China growth have been well absorbed.
"So I think what is happening in China has provided a little bit
comfort to global investors rather than scaring them," he said.
