World Economy

Gloom and doom not the right way: Blanchard

Jessica Hartogs, Special to CNBC
The ECB should not use negative rates: Blanchard
The ECB should not use negative rates: Blanchard

The former chief economist of the International Monetary Fund (IMF) told CNBC Friday that he was "more optimistic than the median investor" and that a pessimistic view won't help markets.

Olivier Blanchard, senior fellow at the Peterson Institute for International Economics, said to CNBC from the Ambrosetti Forum in Italy that "gloom and doom doesn't seem to be the right way of thinking about things."

Blanchard believes that the European Central Bank (ECB) need not take further action by cutting deposit rates further into negative territory, as was discussed this week at the ECB's minutes meeting.

"My general view is that there is no fire in the house. Basically, they have to keep monetary policy as helpful as possible, but it's not time for desperate measures or extreme measures. In that respect, I think that negative rates is not something they should be using at this point," said Blanchard.

"It probably works, but it really has effects on the banking system," he added. "I don't expect things to go that bad that they have to use them."

Blanchard said that if necessary, he would rather the ECB use quantitative easing (QE) measures such as bond-buying rather than negative rates to bring the value of the euro down.

Speaking on the U.S. economy, Blanchard painted a rather positive picture, telling CNBC, "The U.S. is more or less back to full employment, normal inflation, steady growth… if you take one step back, basically the U.S. economy has returned to normal."

Olivier Blanchard, chief economist of the International Monetary Fund (IMF).
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