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Central banks still have “some ammunition” as they seek to boost economic expansion, according to Maury Harris of UBS AG.
Policy makers around the world are cutting interest rates and increasing bond buying. The European Central Bank and People’s Bank of China cut their benchmark borrowing costs today, while the Bank of England raised the size of its asset- purchase program. They acted two weeks after the Federal Reserve expanded a program lengthening the maturity of bonds it holds.
“We hope that we’re seeing something that’s effectively coordinated,” Harris, chief economist at UBS Securities in New York, said in a radio interview on “Bloomberg Surveillance” with Tom Keene, Ken Prewitt and Sara Eisen. “People see problems and forget that the central bank still has some ammunition left.”
UBS forecasts China’s gross domestic product will grow 7 percent this year, Harris said. That compares with 8.2 percent in the median estimate of economists surveyed by Bloomberg, after the nation’s GDP expanded 9.2 percent in 2011.
China cut benchmark interest rates for the second time in a month and allowed banks to offer bigger discounts on their borrowing costs, stepping up efforts to reverse a slowdown in the world’s second-biggest economy.
“The advantage you have in China is that there’s more leverage over the banking system,” Harris said. “There is an impact on the real economy from these policy moves that stems importantly from what it does for business confidence.”
The ECB cut its benchmark rate by a quarter-percentage point and said it will no longer pay anything on overnight deposits. The BOE raised its asset-purchase target by 50 billion pounds ($78 billion) to 375 billion pounds.
Fed Chairman Ben S. Bernanke signaled last month U.S. policy makers may add stimulus if the economy fails to make sufficient progress in creating jobs. The Labor Department will report tomorrow that U.S. payrolls expanded by 93,000 positions in June, the third straight month below 100,000, and the jobless rate stayed at 8.2 percent, according to Bloomberg surveys.
UBS forecasts that employers added 85,000 to their payrolls last month.
“It’s probably a level of job formation where the unemployment rate stabilizes, but we need to do better than that to bring it down,” Harris said. “Given the number of job openings we have in this country, we probably should have lower unemployment if the labor market were working better.”
Harris estimated the U.S. unemployment rate will decline to 7.8 percent by the end of the year and to 7.3 percent at the end of 2013. The median forecast of economists in a Bloomberg survey estimates the rate will fall to 8.1 percent in 2012 and to 7.8 percent next year.
“What I would be watching over the summer is what happens to the public-confidence gauges,” Harris said. “That’s the intangible that’s very important with policy right now.”
To contact the reporters on this story: John Detrixhe in New York at firstname.lastname@example.org; Tom Keene in New York at email@example.com
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