July 31 (Bloomberg) -- The U.S. may now be in a ``very long'' recession that will drive the unemployment rate higher, with little that the Federal Reserve can do to help, said Harvard University Professor Martin Feldstein.

``I don't see recovery'' on the horizon, Feldstein, who headed the National Bureau of Economic Research until June and serves on the group's recession-dating panel, said in an interview with Bloomberg Radio.

Feldstein said the Fed has already lowered interest rates as much as it can to help growth, and that exports offer the only bright spot, while they aren't strong enough to fuel a recovery. A former adviser to President Ronald Reagan, he also warned that policies proposed by Senator Barack Obama, the presumptive Democratic presidential candidate, would prolong the downturn.

The next president ``should not be raising taxes,'' Feldstein said. He said he was ``really surprised'' that Obama ``hasn't backed off his proposals for a major tax increase.''

Feldstein said today's gross domestic product figures reinforced his view that the economy entered a recession in December or January. GDP shrank at the end of 2007 and grew less than forecast in this year's second quarter, the Commerce Department reported today.

Fed officials have lowered their benchmark rate to 2 percent from 5.25 percent since September, bringing the reductions to a halt in June amid rising concern that inflation will accelerate. Feldstein indicated the central bank should refrain from lowering borrowing costs further.

Fed Role

``I don't think that there's much the Fed can do one way or the other at this point,'' he said.

While Treasury Secretary Henry Paulson today said that the fiscal stimulus package enacted in February will keep helping the economy in the second half, Feldstein wasn't so optimistic.

``The little boost that we got from the tax rebates we will give up in the third and fourth quarters,'' Feldstein said. ``We're in for higher levels of unemployment and job losses.''

A ``typical'' U.S. recession lasts about 12 months, while the past two were about eight months, Feldstein said. This time, the slump may be longer, he indicated.

``If we do end up dating the recession as beginning at the end of last year, it could be a very long recession,'' he said.

Both Feldstein and Robert Hall, the Stanford University economist who leads the NBER's Business Cycle Dating Committee that determines U.S. recessions, said it was too early to gather for a formal declaration.

NBER's Hall

``My personal reaction is that a tiny decline in real GDP in late '07, when employment was still rising, followed by growth in the first two quarters of '08, is a doubtful basis for finding a peak in the fall of '07,'' Hall said in an interview today.

Hall added that ``I expect that the committee will continue to monitor the data and wait until we can take our usual clear look at retrospective data.''

GDP shrank at a 0.2 percent annualized pace in the fourth quarter of last year, compared with a previously reported 0.6 percent gain, the Commerce Department said today. It expanded 0.9 percent in the first three months of this year, and 1.9 percent in the second quarter. The median forecast of economists surveyed by Bloomberg News was for 2.3 percent growth last quarter.

The smallest trade deficit in seven years, helped by the weakening U.S. dollar, prevented the economy from shrinking again last quarter. Excluding trade, the economy would have contracted at a 0.5 percent pace.

``The more competitive dollar'' is helping, Feldstein said. Still, ``I don't think there's enough'' strength in exports ``to lift the economy out of recession,'' he said.

To contact the reporters on this story: Timothy R. Homan in Washington at thoman1@bloomberg.netKathleen Hays in New York at khays4@bloomberg.net

Last Updated: July 31, 2008 14:07 EDT