Feldstein: What’s Happening to the US Economy?

Martin Feldstein sounds worried:

What’s Happening to the US Economy?, by Martin Feldstein, Commentary, Project Syndicate: The American economy has recently slowed dramatically, and the probability of another economic downturn increases with each new round of data. ...

Monetary and fiscal policies cannot be expected to turn this situation around. The US Federal Reserve will maintain its policy of keeping the overnight interest rate at near zero; but, given a fear of asset-price bubbles, it will not reverse its decision to end its policy of buying Treasury bonds – so-called “quantitative easing” – at the end of June.

Moreover, fiscal policy will actually be contractionary in the months ahead. The fiscal-stimulus program enacted in 2009 is coming to an end, with stimulus spending declining from $400 billion in 2010 to only $137 billion this year. And negotiations are under way to cut spending more and raise taxes in order to reduce further the fiscal deficits projected for 2011 and later years.

So the near-term outlook for the US economy is weak at best. Fundamental policy changes will probably have to wait until after the presidential and congressional elections in November 2012.

Sarah Raskin is also worried, and seems to be one of the few Federal Reserve Board willing to "underscore" the employment part of the dual mandate (though I think Feldstein's right about further easing, that won't happen unless the outlook darkens considerably, and even then there's no certainty the Fed would take action):

Fed’s Raskin Paints Grim Picture of Recovery, by Luca Di Leo, Real-Time Economics: Federal Reserve Board governor Sarah Raskin Wednesday painted a grim picture of the U.S. economy and signaled support for the central bank’s easy-money policies aimed at boosting jobs.

In a speech to the New America Foundation, Raskin said the jobs market is actually in worse shape than what’s indicated by the headline 9.1% unemployment rate. ...Raskin told the audience “we should pause to underscore the promotion-of-maximum-employment imperative of the Federal Reserve’s dual mandate.” ...

Though statistics show that about 13.9 million Americans were out of work in May, an additional 8.5 million workers had to settle for part-time jobs or were forced to cut back on their work hours, Raskin said.

“It is necessary for the strength of our nation’s recovery that low- and moderate-income Americans be able to more fully participate in the economy,” the Fed official said. ...