Martin Feldstein is professor of economics at Harvard University, and is the current chairman of the National Bureau of Economic Research which makes the formal declaration on economic recessions in the US. He was the leading contender for the Federal Reserve Chairman along with Ben Bernanke of Princeton.
U.S. May Be in `Very Long' Recession, Harvard's Feldstein Says
By Kathleen Hays and Timothy R. Homan
Bloomberg News
July 31 (Bloomberg) -- The U.S. may now be in a ``very long'' recession that will drive the unemployment rate higher, with little that the Federal Reserve can do to help, said Harvard University Professor Martin Feldstein.
``I don't see recovery'' on the horizon, Feldstein, who headed the National Bureau of Economic Research until June and serves on the group's recession-dating panel, said in an interview with Bloomberg Radio.
Feldstein said the Fed has already lowered interest rates as much as it can to help growth, and that exports offer the only bright spot, while they aren't strong enough to fuel a recovery. A former adviser to President Ronald Reagan, he also warned that policies proposed by Senator Barack Obama, the presumptive Democratic presidential candidate, would prolong the downturn.
The next president ``should not be raising taxes,'' Feldstein said. He said he was ``really surprised'' that Obama ``hasn't backed off his proposals for a major tax increase.''
Feldstein said today's gross domestic product figures reinforced his view that the economy entered a recession in December or January. GDP shrank at the end of 2007 and grew less than forecast in this year's second quarter, the Commerce Department reported today.
Fed officials have lowered their benchmark rate to 2 percent from 5.25 percent since September, bringing the reductions to a halt in June amid rising concern that inflation will accelerate. Feldstein indicated the central bank should refrain from lowering borrowing costs further.
Fed Role
``I don't think that there's much the Fed can do one way or the other at this point,'' he said.
While Treasury Secretary Henry Paulson today said that the fiscal stimulus package enacted in February will keep helping the economy in the second half, Feldstein wasn't so optimistic.
``The little boost that we got from the tax rebates we will give up in the third and fourth quarters,'' Feldstein said. ``We're in for higher levels of unemployment and job losses.''
A ``typical'' U.S. recession lasts about 12 months, while the past two were about eight months, Feldstein said. This time, the slump may be longer, he indicated.
``If we do end up dating the recession as beginning at the end of last year, it could be a very long recession,'' he said.
Both Feldstein and Robert Hall, the Stanford University economist who leads the NBER's Business Cycle Dating Committee that determines U.S. recessions, said it was too early to gather for a formal declaration....
