WASHINGTON A senior aide to President Barack Obama warned on Wednesday against moving too quickly toward a more austere U.S. budget policy, saying it could harm the economy and rattle financial markets.
"If you try to tighten the belt right now, I think you would spook markets in a substantial way," Austan Goolsbee, chairman of the White House Council of Economic Advisers, said in an interview at the Reuters Washington Summit.
Goolsbee said investors recognized Obama's $814 billion economic stimulus program had helped to shore up growth and that the economy may not be ready for a sudden pullback.
"We need to make sure that the private sector has stood up before we start pulling the plug on everything else," he said.
Obama this month unveiled a package of measures, including tax breaks to encourage business investment and new spending on infrastructure, to help jump-start the U.S. economy, which has hit a soft patch while unemployment remains stubbornly high at 9.6 percent.
Republicans have criticized Obama over the roughly $1.5 trillion U.S. budget deficit and painted him as a big spender, a message that has gained traction with voters. The White House counters that the huge deficits are a legacy of the Bush administration and the deep recession that began before Obama took office.
Goolsbee said turning to fiscal austerity too quickly would risk repeating the mistakes of the 1930s and said targeted measures such as the tax breaks could bolster growth.
He said the U.S. economy was not headed for a double-dip recession and predicted steady economic growth in the coming months.
Even as the economy's near-term health remained a concern, Goolsbee said reducing long-term budget deficits would be a policy priority after the November 2 elections, which could change the balance of power in Congress.
"What we should properly be thinking about is medium-run and long-run fiscal sustainability, which is really important. Let's get out of this ... environment and then let us confront those issues," he said.
The White House has said deficit reduction would be a top priority regardless of whether Republicans or Democrats hold majorities in Congress.
A majority of Americans favor cutting the deficit as a way to improving the economy instead of an increase in government spending, according to a Reuters Ipsos poll on Tuesday.
Goolsbee said Obama was committed to following through on the deficit reduction effort after his bipartisan U.S. fiscal commission issues its recommendations on December 1.
Goolsbee declined to speculate on who would take over the other top economic job in the White House after adviser Larry Summers leaves later this year, but he said turnover in the president's economic team did not signal a policy shift.
"I don't anticipate that there's ... any dramatic change of direction," he said.
"I think the number one priority of whoever takes the job is going to be the same as Larry's and the whole economic team's and the president's priority, which is get the economy growing faster, get people back to work, get us out of the deepest hole since 1929."
(Reporting by Caren Bohan and Jeff Mason; Editing by Tim Dobbyn and Leslie Adler)