S&P economist not worried about US taper MOVES to wind back monetary stimulus should not derail the US economy, according to Standard & Poor's chief global economist Paul Sheard. The US economy is being pushed along by a recuperating private sector and stimulatory monetary policy, he said. But it's also being restrained by fiscal policy, as the US tries to rein in its budget deficit. The result has been tepid economic growth of just 1.6 per cent over the year to June. But the fiscal policy drag should ease "quite a bit" later this year and into 2014, Dr Sheard told a business event in Sydney. At the same time, he expects the private sector's momentum "to pick up a notch or two." But the Federal Reserve, the US equivalent of the Reserve Bank of Australia, has flagged a rollback of its monetary stimulus. It's currently buying bonds worth $US85 billion a month to pump cash into private bank reserves, the so-called quantitative easing of monetary policy, or QE. The Fed has signalled it will start trimming its bond purchases later this year and stop them altogether by mid-2014, when the unemployment rate - 7.4 per cent in July - should be around seven per cent. It's also foreshadowed a lift in the benchmark short term rate, Fed funds, from its current near-zero level. But that won't happen before the unemployment rate falls below 6.5 per cent. The big question being asked by investors is how the first stage of this process, the so-called "taper" of the bond buying, will affect the forecast pickup in private sector activity. But Dr Sheard is not worried. We don't think the Fed's calibrated QE tapering is going to put much of a dent in that. "This should allow the economy to grow at close to three per cent next year," Dr Sheard said. Part of the reason for his optimism stems from the nature of QE. It's a policy that central banks resort to when the policy rate hits the "zero bound" and can't go any lower, he said. Almost by definition and construction, it's a very weak stimulatory measure, and that's why the central bank has to do it on such a large scale, to get at least some stimulative effect. There will be financial market volatility associated with the taper, but the idea that it will destabilise the global economy "is way off base," for two reasons. "One is that it's not a very powerful policy to begin with, so logically its withdrawal can't have that much tightening effect," Mr Sheard said. But much more to the point, the Fed has now developed a sort of results-oriented monetary policy and it's all calibrated to achieving its results. So if the taper starts to have an adverse effect on the economy, the Fed will just back off, he said.