Tags: martin feldstein | inflation | rates | jobs

Martin Feldstein: Low Rates 'Screwing Up Asset Prices in a Terrible Way'

By    |   Tuesday, 18 Oct 2016 04:24 PM

 

Harvard economist Martin Feldstein warns that inflation is on an upward trajectory.

Feldstein, who chaired President Ronald Reagan's Council of Economic Advisers, also thinks the U.S. labor market has reached “full employment.”

“If we pushed the economy harder, yes, more people would get jobs, but the inflation rate would be increasing more and of course these very, very low interest rates are screwing up asset prices, in a terrible way,” he told Fox Business Network.


Although the U.S. economy added 156,000 new jobs in September, the unemployment rate rose slightly to 5 percent. Feldstein attributed this to rising inflation.

“It is true that not everybody who wants a job has a job. On the other hand with an unemployment rate of the level we have, about 5%, we are already seeing inflation increasing. So operationally … that’s what limits the unemployment number,” he said.

U.S. consumer prices recorded their biggest gain in five months in September as the cost of gasoline and rents surged, pointing to a steady pickup of inflation that could keep the Federal Reserve on track to raise interest rates in December.

The Labor Department said on Tuesday its Consumer Price Index increased 0.3 percent last month after rising 0.2 percent in August, Reuters reported. In the 12 months through September, the CPI accelerated 1.5 percent, the biggest year-on-year increase since October 2014. The CPI rose 1.1 percent in the year to August.

"The upward creep of prices weakens any argument against a rate increase in December," said Anthony Karydakis, chief economic strategist at Miller Tabak in New York. "The economy is close to full employment and prices are starting to respond to that reality."

Last month's increase in the CPI was in line with economists' expectations. However, underlying inflation moderated amid a slowdown in the pace of increases in healthcare costs after recent robust gains.

Meanwhile, Feldtsein says overall economic growth is actually “substantially better than the official number suggests.”

“The way we measure it really understates what is happening not just recently but over the long haul,” he said. “The government statisticians don’t have a way of dealing with quality improvements so they don’t take into account the fact that the products we buy, the services we get are getting better. They don’t take into account the new products that are coming on stream.”

 
The economy’s failure to develop a sustained pickup has helped keep Federal Reserve policy makers from pulling the trigger on an interest-rate increase so far this year.

 

Economists project a fourth-quarter rebound driven by household purchases and more stockpiling, as recent reports have showed wages and salaries are rising, indicating consumers have the wherewithal to continue spending.

 

Republican presidential nominee Donald Trump has been trying to hammer home to voters the message that the economy can do better. He has blamed President Barack Obama and Democratic nominee Hillary Clinton for policies that produced “the weakest so-called recovery since the Great Depression.”


(Newsmax wire services contributed to this report).
 

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Harvard economist Martin Feldstein warns that inflation is on an upward trajectory.
martin feldstein, inflation, rates, jobs
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2016-24-18
Tuesday, 18 Oct 2016 04:24 PM
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