Economy is fragile, recession could occur, Harvard professor warns

Renowned Harvard professor and economist Martin Feldstein said the Federal Reserve would not be prepared if a recession were to occur soon.

Feldstein told FOX Business’ Maria Bartiromo during an interview on “Mornings with Maria” on Wednesday that the economy is in good shape because of low unemployment and inflation, but despite that, it is still very fragile.

While the former economic adviser for President Ronald Reagan said he can’t predict exactly when a recession could happen, he said, “I think [the economy] is fragile because of the level of asset prices. And if the economy turns down, the Fed has no tools to offset that.”

As of June 14, the Federal Open Market Committee’s (FOMC) target federal funds rate was at 1.75%. Feldstein said that “the danger now is it’s too low. If they have to cut it, they’ve got nothing to cut from.”

In the 2008 recession, that rate was lowered to 0.25%, according to the FOMC.

Feldstein said he’s worried that the Fed has not been preparing during the past few years for a future recession.

“The Fed made a mistake by not starting several years ago to push up the short rate,” he said, “I think the loan rate is going to rise not just because the Fed is tightening, but because everybody sees these large fiscal deficits coming along.”

As previously reported by FOX Business, more than 20 economists predicted that a big economic downturn could occur between the fourth quarter of 2019 and the second quarter of 2020, according to a report from the National Association for Business Economics.