Krugman sees possible US recession with little Fed wiggle room

By BLOOMBERG

DUBAI • Nobel laureate Paul Krugman said the US economy may be heading into a recession at a time when the US Federal Reserve (Fed) doesn’t have the firepower to properly combat a slump.

“There seems to be an accumulation of smaller problems and the underlying backdrop is that we have no good policy response,” he said in a Bloomberg TV interview in Dubai.

The headwinds facing the economy prompted the Fed this month to halt its interest-rate hiking cycle, which Krugman said was never “grounded in the data” to begin with. “Continuing to raise rates was really looking like a bad idea.”

US CFOs in a Duke University survey published in December overwhelmingly said they expect a recession within two years. “I wouldn’t be as definitive, but it seems pretty likely,” Krugman said.

While Krugman doesn’t expect a crisis of the magnitude of 2008, he said policymakers in Washington would struggle to contain large shocks.

The economist, a vocal critic of President Donald Trump’s administration, said it was hard to see the US leadership “respond in any kind of a nimble way”.

“We’re clearly in worse shape,” he said, citing lower public debt in 2008 and “lots of room” to lower interest rates back then. “And we came into the last crisis with pretty remarkable leadership.”

“Let’s put it this way, our current Treasury Secretary is no Hank Paulson,” he said. — Bloomberg