Former Federal Reserve Governor Kevin Warsh said the central bank will probably press on with its “aggressive” easing as growth this year may fall short of the pace needed to put millions of Americans back to work.
Job growth requires a 3 percent to 3.5 percent expansion that won’t be in reach for the world’s largest economy this year, Warsh said today in a Bloomberg Television interview at the Milken Institute Global Conference in Los Angeles. Policy makers probably will maintain their current stance, he said.
“For those that don’t have jobs, it looks to be an increasingly difficult trek to find employment in an economy that’s growing less than 2 percent,” said Warsh, now a lecturer at the Stanford University Graduate School of Business in Stanford, California. “We’re now four, five years into a very disappointing recovery and I wish I could tell you this will be the year it breaks out to the upside but it won’t.”
The U.S. economy expanded less than forecast in the first quarter, increasing at a 2.5 percent annualized rate, the Commerce Department said last week. The gain followed a 0.4 percent fourth-quarter advance, and compares with a 3 percent median estimate of economists surveyed by Bloomberg.
“This economy has now been so weak for so long that we’re probably doing structural harm to the economy,” Warsh said.
Employers added 88,000 workers to payrolls in March, the fewest in nine months, Labor Department data show. Unemployment fell to 7.6 percent, the lowest in four years, as workers left the job market.
Warsh said Fed Chairman Ben S. Bernanke probably will press on with “more aggressive monetary policy showing no interest in tapering” this week as the Federal Open Market Committee meets over the next two days. The Fed has said it will continue $85 billion a month in asset purchases known as quantitative easing until the labor market shows substantial improvement.
While Bernanke, 59, hasn’t indicated whether he would serve a third term as chairman after his second expires in January, Warsh said he would advise President Barack Obama that Bernanke is best suited to steer the central bank.
“The man that is in the seat right now is more likely to be able to pull this off more than anyone else I can conceive,” Warsh said. “He has built the credibility and confidence in markets, and I would say making a change necessarily will involve some risks, but I would say Fed policy is more or less on autopilot regardless of who succeeds him.”
Warsh, 43, is a former Morgan Stanley investment banker who was the youngest-ever Fed governor when he was appointed by then-President George W. Bush in 2006. He left the Fed in 2011.
Warsh was an architect of the terms the Treasury dictated to nine of the biggest U.S. banks in October 2008 in return for a $125 billion injection of government funds. He helped negotiate the sale of Wachovia Corp., mediating a takeover fight that erupted between Citigroup Inc. and Wells Fargo & Co.
Warsh served as the Fed representative to the Group of 20 nations and the Board of Governors’ emissary to emerging and advanced economies in Asia. He also managed Fed operations and personnel as the governor assigned to administration.