S&P’s Bovino: Fed Likely to Stay Focused On US Econ, Watch EM

 

01:54 EST / Jan 30

By Ian McKendry

WASHINGTON (MNI) – With the anticipation of tighter U.S. monetary policy, slower growth in China and a sell-off in emerging market currencies, worries of economic destabilization and possible spill-over effects had many wondering if the Fed might slow its “measured reduction” in asset purchases, but on Wednesday, the Fed stayed the course and S&P’s U.S. Chief Economist Beth Ann Bovino believes the Fed’s focus will continue to be on the domestic economy.

“I am sure they are concerned about it,” Bovino told MNI following a press conference at the Bipartisan Policy Center. “I didn’t think the sell-off in emerging markets was going to impact their decision unless it spills over, which it hasn’t,” she added.

Bovino said “the factor is going to be what goes on with jobs and price stability,” and that she believes the Fed will continue its measured pace of reducing asset purchases by $10 billion at the next couple of FOMC meetings and if the economy gets a little stronger, “they may up it.”

Data from the U.S. Department of Commerce earlier Thursday showed that the U.S. economy grew 3.2% in the fourth quarter, which was slightly slower than the third quarter pace of 4.1%, but the Commerce Department noted that the U.S. government shutdown impaired economic growth, estimating that hours lost by Federal employees alone shaved 0.3 percentage points from the fourth quarter GDP figure.

Bovino said she is estimating U.S. GDP will increase 2.8% in 2014, which is about on par with the median survey estimate from the December Philadelphia Federal Reserve Livingston survey which surveyed 33 economists and the lower-end of the latest FOMC economic projections. She said however, that she made her forecast before the Senate came up with a budget agreement and that growth could be stronger given that another budget showdown is unlikely.

“The shock from Capitol Hill seems to have lessened,” Bovino also told MNI, adding that “it looks like a shutdown this year is not in the cards, that risk is gone.”

Bovino said another positive, is that the private sector was “surprisingly resilient” in 2013 and that the government is not going to be as much of a drag in 2014.