See loose monetary policy from Fed ahead: Harvard Prof

Menaka: What is your assessment of what the data look like and what the taper will mean through the course of this year?

A: I would reiterate what I talked to you in December, which is that they are not looking to tighten monetary policy. They are working to change it. The quantitative easing (QE) is a very experimental policy and I think some component of what we are seeing is they decided, they wanted to go in a different direction to achieve the same thing. We are going to have a very loose monetary policy going forward. They may reach a point where the economy is strengthening and they have to do something to reinforce to the markets that they intend to do that but as I told you in December, I think it will come in the form of maybe a little higher inflation tolerance or maybe something that the deflation gets too big, they will do something but I think that is what - we will see not any dramatic tightening.

Menaka: The jobs number that we saw in December or rather the first week of January, does that in a sense give you the impression that the Fed might pause in the process of tapering or do you think that one month’s data is not going to change their plan?

A: Economic data is very imperfect even in the best of times and I think this jobs number cannot be dismissed but it is very hard to put into the broader picture where there are a lot of positive signals about the US economy. I think it is way too soon for them to decide things are weakening and I think they are strengthening but they don’t intend to tighten unless it strengthens a lot for a long time.