Joseph Stiglitz Thinks Reducing Monetary Stimulus May be Premature

Joseph Stiglitz, the renowned economist and winner of Nobel Prize believes that if US Federal Reserve decides to reduce monetary stimulus the move would turn out to be premature. However, Stiglitz added that currently, there is no evidence that monetary stimulus has helped the largest economy in the world.

Stiglitz currently works as the Professor of the Columbia University and he clearly stated that the economy is yet to get back to normalcy. However, if policy makers accept this as new normal, that will ultimately turn out to be a big mistake.

On last week, the US stocks and Treasuries experienced a drop for the 4th straight week, thereby experiencing the longest slide of the same since last August. Ben S. Bernanke, the Chairman of the Federal Reserve stated that the Federal Reserve may cut the pace of asset purchases if the policy makers notice indications that the country has been able to sustain growth. Incidentally, in April, the order for durable goods increased more than what was forecasted, thereby denoting that the economy should be getting a lift in 2013’s 2nd half.

Zhu Min, the Deputy Managing Director of the International Monetary Fund stated that the US economy is still not out of the recovery phase. Thereby maintaining the momentum of the growth is still a major issue for the country. In the last few months, the growth has been strong.

Most of the economists feel that the growth will slow down to 2% in 2013, from its value of 2.2% in 2012. It is expected to go to 2.7% in next year, making the fastest pace of growth since 2006.

Incidentally, the New York President of the Federal Reserve, William C. Dudley, on last week, stated that policy makers should know in next 3 to 4 months if economy is in good enough state for overcoming the federal budget cuts and allow the Central Bank for starting to reduce the record stimulus.

Stiglitz clearly stated that it is tough to have a debate over the stimulus of Federal Reserve as there is very less evidence that the same has helped the US economy. Stiglitz acknowledged that the same probably had a good enough role to play in helping the asset price bubbles and also reducing the price of USD. Such things must have helped the exports of US.