JERUSALEM (Reuters) - A recovery in the housing market and strong growth in consumer wealth will help jump-start the U.S. economy later in 2013, said Larry Summers, a former adviser to President Barack Obama.
Summers, considered a possible candidate to replace Federal Reserve Chairman Ben Bernanke when his current term ends next year, said a further boost would come from an increase in U.S. energy production
“There are no certainties, there are enormous risks and there are some substantial problems but ... the American economy is coming back,” Summers, Obama’s top economic adviser until November 2010, told a conference in Jerusalem on Wednesday.
“Barring a major shock from abroad, U.S. growth will move to the 3 percent range by the end of the year and will accelerate from that because the housing sector, which is only 4 percent of the economy but more than half of the business cycle, has turned decisively.”
The Fed projects U.S. economic growth of 3.0-3.5 percent in 2014.
Obama this week hinted that he may be looking for a new Fed chief, saying Bernanke has stayed a lot longer than the current chairman had originally planned.
Bernanke, who has tried to nurse along the ailing U.S. economy since the 2008 financial crisis, is widely expected to step down when his second term as chairman expires at the end of January.
When asked whether his various speeches this week in Jerusalem were a form of lobbying for Bernanke’s job, Summers told Reuters: “Absolutely not. Absolutely not.”
He declined to comment on whether he was interested in the post.
Housing prices have risen 10 percent over the past year, partly as an excess of housing capacity has swung to a shortage, said Summers, director of the White House National Economic Council in 2009-2010 and treasury secretary under President Bill Clinton.
He said consumer wealth was pushing historic highs as house prices and asset prices have risen.
U.S. fiscal policy is also improving as steep government spending to boost the economy has slowed while tax income has grown, he said. At the same time, public sector employment will likely rise, in a reversal of the past few years.
Still, “there is no question that the U.S. requires further fiscal adjustment”, Summers said. “If Congress takes no further action, according to conservative projections, the U.S. debt-GDP ratio in 2015 will be lower than it is now in 2015 and in 2020, it will be lower than in 2015.”
Health care costs are estimated to be $1 trillion less over the next decade than was the case two years ago, in part due to Obama’s measures, he said.
“So, the budget deficit situation is less serious,” he said.
Reporting by Steven Scheer; Editing by Alison Williams