Harvard's Feldstein Says U.S. Should Dodge Recession (Update1)
By Kathleen Hays and Simon Kennedy
bloomberg.com
Aug. 24 (Bloomberg) -- The U.S. economy should dodge recession, said Harvard Professor Martin Feldstein, who heads the organization that dates business cycles.
``If I had to make a likely guess, I would say slow growth, but not recession,'' Feldstein said in an interview in Jackson Hole, Wyoming, where he's attending the Federal Reserve's annual economic symposium.
A slump in housing, near-record oil prices and the highest Fed interest rates since 2001 have prompted some economists to speculate the world's largest economy may slip into recession next year after five years of expansion. David Rosenberg, chief North American economist at Merrill Lynch & Co., has said there is a 40 percent change of such a slump.
Feldstein, who chairs the National Bureau of Economic Research, said a recession could occur if households made a ``decision to start saving again'' rather than keep spending as the housing market fades. New-home sales in the U.S. fell more than economists forecast in July and the number of unsold houses climbed to a record, the Commerce Department reported today.
``Household savings is now negative and that was driven by the fact that house wealth was up and that mortgage refinancing was very, very appealing,'' Feldstein said. ``People took that money and they went and spent a lot of it. So if that goes into reverse, that could tip the economy.''
Still, he noted a ``lot of positives that could keep the economy moving along,'' among them a moderation in the trade deficit.
As chairman of Cambridge, Massachusetts-based NBER, Feldstein is a member of its Business Cycle Dating Committee. The last recession, according to its calculations, began in March 2001 and ended the following November.
Fed Outlook
Feldstein, once a candidate for the Fed chairmanship, said it was too soon to tell if the U.S. central bank would raise interest rates again after its policy-setting open market committee decided Aug. 8 to suspend a two-year campaign of rate increases to gauge how its past work was affecting the economy.
``We cannot tell yet'' if the Fed will have to change rates again, he said in the interview. ``The slowdown may be there without further changes in interest rates.''
In a separate interview in Jackson Hole, former Fed governor Lawrence Meyer said the economy is heading toward ``an environment where it is less likely, unlikely, that the Fed will tighten further.''
The Fed kept its benchmark lending rate at 5.25 percent on Aug. 8, ending a two-year run of increases.
Moscow Comments
Chicago Fed President Michael Moskow this week said a sharp decline in housing would be a risk to the economy. Moskow also warned higher interest rates might be needed to stem inflation.
``The risk of inflation remaining too high is greater than the risk of growth being too low,'' he said Aug. 22. ``Some additional firming of policy may yet be necessary to bring inflation back into the comfort zone within a reasonable period of time.'' |
