Rate hikes will squeeze economy, markets: Harvard economist

By U.S. EconomyFOXBusiness

Fed should have started raising rates three years ago: Martin Feldstein

Harvard Economics Professor Martin Feldstein on the state of the economy and the potential impact of the Federal Reserve raising interest rates.

The U.S. economy is on fire, but according to famed Harvard economist Martin Feldstein rising interest rates will squeeze growth.

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“What worries me is not what’s happening now but what will happen as long-term interest rates rise,” he said on Thursday during an interview with FOX Business’ Maria Bartiromo. “They’ll cut into the growth and they’ll cut into the market.”

Trump last December rolled out the Tax Cut and Jobs Act, which some analysts say has pushed the U.S. unemployment rate to 3.7 percent, the lowest rate in nearly 50 years.

And the World Economic Forum on Wednesday named the U.S. the most competitive economy in the world for the first time in a decade.

In Feldstein’s opinion, in order for the economy to continue to expand, the U.S. needs monetary policy that can mediate higher rates while the short-term rate is lower than the rate of inflation.

“The Fed should have started raising rates… three years ago,” he said. “We’ve run a decade of negative real rates and that’s put us in a bad position.”

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Trump on Tuesday, during an interview with FOX Business’ Trish Regan, continued his assault on the Federal Reserve saying that it’s his “biggest threat” because they are “raising rates too fast, and it’s too independent.”

But Feldstein said that the Fed has to gradually push up the rate because when the economy slumps they have “no ammunition.”

The Federal Reserve on Wednesday will release the minutes from its September meeting on the state of the economy and their plans to raise rates.