Stock market dive is a vicious cycle: Famed Harvard professor

By PoliticsFOXBusiness

US economy now is great, but fragile: Martin Feldstein

Harvard Economics Professor Martin Feldstein on the outlook for the U.S. economy and markets.

The U.S. economy may be booming right now, but it’s “very fragile,” according to famed Harvard professor Martin Feldstein.

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“Over the next two years there’s a better-than-even chance that we’ll see a downturn,” he said on FOX Business’ “Mornings with Maria.

On Friday the Labor Department said that U.S employers added 155,000 jobs in November, falling short of Wall Street analysts’ expectations, and the unemployment rate remained at 3.7 percent -- the lowest in nearly 50 years.

U.S. gross domestic product remained at 3.5 percent in the third quarter.

Fears over a potential economic slowdown contributed to a highly volatile U.S. stock market last week. The volatility extended on Monday after British Prime Minister Theresa May announced that the vote on Brexit would be delayed.  The major U.S. stock market averages fell more than 1 percent each, with the Dow Jones Industrial Average on track to enter correction territory.

Feldstein said the stock market drop is a vicious cycle.

“As markets fall, households lose wealth,” he said. “When they lose wealth they spend less money.”

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Feldstein is also worried about Fed rate hikes.

In an op-ed written for the Wall Street Journal, Feldstein argued that if the Federal Reserve raised interest rates now, there would be no wiggle room to cut rates once the economy slows down.

“If you don’t have the ammunition then we are all going to be unhappy,” he said.

The Fed this month is expected to raise rates for the fourth time this year. Analysts also project an additional three rate hikes in 2019. The Fed funds rate is currently in a target range of 2 percent to 2.25 percent.