Businesses Are Complacent About Looming Sequester: Economist
As U.S. politicians try to cut a last-minute deal on the sequester cuts set to kick in on Friday, ING Chief International Economist Rob Carnell told CNBC that businesses are complacent about the significance of the cuts.
The sequester - a series of automatic spending cuts totaling $85 billion this year and $1.2 trillion over 10 years - is scheduled to hit on Friday and politicians have warned it could affect education budgets, defense spending and medical research.
Carnell said markets may have shrugged off sequester fears, with the Dow ending Wednesday's trading session within 100 points of its all-time closing high.
"I think that there's a degree of complacency here," Carnell told CNBC Thursday.
"We are going to see those people laid off furlough, losing their jobs. We are going to see the money going to them cut, we are going to see some shorter working weeks. And I think big businesses aren't that worried about it, but I suspect the average person in the street is probably a little bit more worried."
(Read More: Cuts Unlikely to Deliver Promised US Budget Savings)
Carnell singled out comments made by Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, on Monday, as optimistic. Lockhart said US. economic growth could surpass expectations this year, with gross domestic product potentially rising more than 2.5 percent.
"Well you know Dennis, no, it is going to be quite bad," Carnell said. "I think the data is going to look pretty soft in the next couple of months."
Carnell said sequester concerns, coupled with the payroll tax cut announced in the fiscal cliff deal struck at the start of the year, mean Federal Reserve Chairman Ben Bernanke is right to hold fire on any interest rate hike, or ending monetary easing.
"Ben Bernanke, and all the things he's saying about QE (quantitative easing) carrying on, are going to look quite sensible for a while," he said.
(Read More: Bernanke: 6% Unemployment Rate Still 3 Years Away)
On Wednesday, in the second day of his testimony on Capitol Hill, Bernanke said loose monetary policy was boosting employment.
"We believe the monetary policies we have conducted have helped get stronger recovery and more jobs than we otherwise would have had," he said, according to Reuters. He also warned Congress of the dangers of failing to reach an agreement on how to combat sequestration.
"I think there is some cost to the economy of these repeated, I won't say 'crises,' but these repeated episodes where Congress is unable to come to some agreement and therefore some automatic thing kicks in. I think that is on the whole not a good thing for confidence," Bernanke said on Wednesday, according to Reuters.
Carnell says he will keep a keen eye out for further comment or policy news from Fed chiefs on Thursday, after the government's release of its latest fourth-quarter gross domestic product (GDP) estimate.
GDP expanded at a 0.1 percent annualized rate, the Commerce Department said on Thursday, missing the 0.5 percent gain economists polled by Reuters had forecast.