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Feldstein: More Fed Easing Won't Revive Economy

Wednesday, 22 Sep 2010 02:57 PM

Harvard University economics professor Martin Feldstein said more bond purchases by the Federal Reserve probably wouldn’t do much to spur the slowly growing U.S. economy.

“At this point we’re really in a kind of holding pattern for the economy,” said Feldstein, a member of the National Bureau of Economic Research committee that dates the beginning and end of recessions, in an interview today on Bloomberg Television’s “InBusiness with Margaret Brennan.” He sees a 30 percent chance the U.S. will relapse into a recession, he said.

The NBER said this week that the worst U.S. recession since the Great Depression ended in June 2009. “The committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity,” the Cambridge, Massachusetts-based NBER’s group said.

“GDP has been growing at a slower rate quarter after quarter,” Feldstein said. “It’s slowing down and there are a lot of headwinds that make it hard for this economy to have a robust recovery.”

The U.S. unemployment rate climbed to 9.6 percent in August from 9.5 percent in July and is forecast to average more than 9 percent through next year. The rate has been at 9.5 percent or higher since June 2009.

“The Fed, while it’s probably going to do some more quantitative easing, that’s not going to have a big impact,” he said.

‘Somewhat Below’

The Federal Open Market Committee said yesterday that inflation is “somewhat below” levels consistent with its congressional mandate for stable prices. The central bank said it is “prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.”

Another round of Fed easing could lower the yield on the 10-year Treasury by 20 or 25 basis points, Feldstein said. A basis point is 0.01 percentage point.

“That’s not going to turn this economy around,” he said, “It will show the Fed cares, it will show that they’re trying, but it really won’t make any significant difference.”

The central bank can reduce the yield on the 10-year Treasury note by about 3 basis points for each $100 billion it spends, according to an estimate by Macroeconomic Advisers LLC.

The White House announced yesterday that Lawrence Summers, the director of the National Economic Council, will leave President Barack Obama’s administration following November’s congressional elections and return to teach at Harvard.

“Frankly there’s not much he could do even if he stayed in the White house,” said Feldstein, who was chairman of the Council of Economic Advisers under President Ronald Reagan.

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Harvard University economics professor Martin Feldstein said more bond purchases by the Federal Reserve probably wouldn t do much to spur the slowly growing U.S. economy. At this point we re really in a kind of holding pattern for the economy, said Feldstein, a member of...
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2010-57-22
Wednesday, 22 Sep 2010 02:57 PM
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