WASHINGTON (Reuters) - The U.S. economy is firmly poised for a recovery from its deep recession but growth may be moderate and the job market will not revive immediately, senior White House aide Lawrence Summers predicted on Wednesday.
“There’s really no doubt that the third quarter registered growth, and growth at a nontrivial rate, and every expectation that the fourth quarter will do the same,” Summers said in an interview as part of the Reuters Washington Summit.
Summers, who heads the White House’s National Economic Council, also gave strong backing to the beleaguered U.S. dollar, which has fallen to a 14-month low against major currencies.
He said he did not think the dollar’s status as a global reserve currency was in jeopardy.
“I think the dollar ... is going to be the world’s primary reserve currency for ... the foreseeable future,” Summers said. “I think the most important thing we can do for the dollar is make sure that it rests on strong fundamentals.”
On the economy, Summers said the $787 billion stimulus package and inventory rebuilding by businesses were among the “dominant drivers” lifting the economy.
But he said considerable slack remained in the economy and job growth would lag behind the broader economic recovery.
“It will be some time before unemployment starts to decline. Once it declines it will take a long time to return to normal levels, given how elevated it is,” he said.
The jobless rate is now at a 26-year-high of 9.8 percent.
“The question of what will propel growth throughout the expansion is still a crucial one,” Summers added. “But that’s always the case at the beginning of expansions.”
Most private economists think the recession, which began in December 2007, ended in the third quarter. But there is much disagreement about the path of recovery.
Some see above-average growth continuing through next year, arguing that deep recessions are typically followed by powerful recoveries, helped along by pent-up demand as consumers and companies resume spending.
Others worry that heavily indebted households will remain cautious in their spending, particularly with unemployment near 10 percent and likely to move higher, restraining a recovery.
It remains unclear what further steps President Barack Obama’s administration may take to spur job growth.
One serious constraint is the $1.4 trillion budget deficit, which is equivalent to 10 percent of the economy -- the highest share since the end of World War Two. Forecasters believe the deficit will remain high in the coming years.
Summers acknowledged those worries and their possible implications for the value of the dollar. He said he took “very seriously” longer-term concerns about indebtedness.
Earlier on Wednesday, Commerce Secretary Gary Locke told Reuters Television the dollar was a “concern” because its weakness could push up the price of oil and other imports.
Summers said the oil price, which hit a one-year high above $81 a barrel on Wednesday, did not risk throwing the U.S. recovery off the rails.
“I think the increase in oil prices is probably ... more a reflection of recovery and the expectation of continued recovery than a threat to recovery,” he said.
As the administration considers further steps to give a boost to the job market and the economy, Summers said the White House was open to extending the tax credit for home buying, a popular idea on Capitol Hill.
He said there was a case to be made for extending the credit “in terms of supporting the housing market.” But he added: “At the same time, we can’t afford everything for which there is a case.”
In a separate interview, Valerie Jarrett, another senior White House adviser, said the administration was considering whether to continue many programs that had been used to boost the economy.
“We have to measure them against how successful have they been. And so we’re in the process of doing that now,” she said, adding that she was not leaning one way or the other on the housing tax credit.
Summers was hopeful that legislation to broadly rewrite U.S. financial regulations would pass soon. “I don’t see any reason why it can’t get done this year,” he said.
Analysts have become increasingly skeptical that Obama can meet his goal of enacting the legislation by year-end. Some say that early next year might be a more realistic time frame.
Some critics say the bill is not robust enough, but Summers said he believed the changes would have a chance to make a major impact on financial stability for years to come.
(For more on the Reuters Washington Summit, see [nN19208783])
(Reporting by Caren Bohan, Jeff Mason and Simon Denyer; Writing by Caren Bohan and Emily Kaiser; Editing by Anthony Boadle and Chris Wilson)
For summit blog: blogs.reuters.com/summits/