Friday’s nonfarm payrolls number certainly comes as a welcome break for investors who have been worried that the Fed’s ultra loose monetary policy has failed to stimulate the real economy.
However, the pace of recovery is likely to slow down, says Alan Krueger, chairman of the White House Council of Economic Advisers, adding the so-called sequestration is going to hurt just when economic recovery is gaining traction. Sequestration is going to make some important spending-cuts which are going to hurt investment and people, and will ultimately slow economic growth and job creation, which is why President Obama had suggested a balanced approach of reducing the budget deficit by closing tax loopholes, reforming entitlements and smarter entitlement cuts, he argued.
Asked to assess the impact of sequestration on jobs growth, Alan said there are number of estimates out there. The Congressional Budget Office expects the GDP growth to slow down by 0.6 percent and reduce employment by three quarters of a million jobs, which turns out about 75,000 jobs every month because the sequester starts from March, so there’s just ten months for rest of the year.
When prodded to give his own calculations, Alan said the CBO’s forecast seems to be a reasonable estimate to him.
Asked to comment on the overall impact of sequestration, Alan said there’s a need to first recognize that it’s bad economic policy because it doesn’t address the long-term deficit problems. The contraction of economic activity by 0.6 percent when the economic growth is gaining traction doesn’t seem all right, he noted.
The automatic spending cuts will affect the military’s preparedness, claims former Defense Secretary Robert Gates. Asked if he agreed with Robert’s views, Alan said the Former Defense Secretary is absolutely right. The Obama administration wants spending cuts in a more intelligent and surgical way so that it doesn’t jeopardize the country’s defenses. It wants to make critical investments that support the economy and put the country on a sustainable course when it comes to the long-run budget, which the sequestration doesn’t do.
Asked if the Republicans and the Democrats could come together on budget negotiations since both the parties want the economy to improve, Alan said the Obama administration wants the economic recovery to gain pace and make sure maximum Americans find employment as soon as possible.
You can watch the video here.
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