White House's Romer urges no hasty stimulus removal

CHICAGO, Sept 24 - A top White House adviser on Thursday warned that policy-makers should not be too quick to remove fiscal and monetary stimulus from the U.S. economy, even if the recession is technically over.

The economy is "back from the brink" and likely to post growth in the current quarter, Christina Romer, chair of the Council of Economic Advisers, said in remarks prepared for a Chicago Federal Reserve/World Bank conference.

However, "now is not the time for a victory lap," and the United States needs to see above-trend growth for some time to start making a dent in the jobless rate, Romer said.

"To talk seriously about stopping support at a time when the unemployment rate is nearly 10 percent and still rising is to risk nipping the nascent recovery in the bud," she said.

"The economic historian in me cringes every time I hear mention of 'exit' from fiscal stimulus and rescue operations in the current situation."

Romer said U.S. gross domestic product growth needs to be above its trend rate of about 2.5 percent to start pulling down the jobless rate, now at a 26-year high of 9.7 percent.

"The more GDP growth exceeds its normal growth, the more likely it is that firms will begin to hire again in substantial numbers and that the unemployment rate will fall significantly," she said.

"The importance of rapid growth to the recovery of unemployment means that policy-makers will need to be very careful in managing the winding down of the extraordinary policy response."

The Federal Open Market Committee on Wednesday voted to keep U.S. interest rates at the rock-bottom levels maintained since December 2008, and suggested that rates would stay very low for an extended period as the recovery gets under way.

The Fed's "fast, bold and effective" policy responses since last fall "will go down as a high point in central bank history," Romer said, but courage is needed to "stick with programs that are working until their work is truly done."

Some economists worry that the Fed's hugely accommodative monetary policy will trigger high inflation before long, creating a new policy headache.

But Romer said that the Fed's reputation as a "reliable steward of price stability" has allowed it to expanded its balance sheet "with no rise in inflationary expectations."

Romer recapped the Obama Administration's proposals for sweeping changes to financial market regulation to eliminate "crucial gaps and weaknesses" to a structure largely conceived in the 1930s.