Harvard’s Feldstein Says Fed Should Slow Bond Buying Amid Risks

Martin Feldstein, a past president of the National Bureau of Economic Research, said the Federal Reserve should start slowing the pace of its $85 billion in monthly bond buying because the risks outweigh benefits.

Low interest rates should be allowed to increase because they “are driving people into very risky behavior and banks into risky loans,” Feldstein said in a Bloomberg Radio interview with Kathleen Hays and Vonnie Quinn.

“It’s adding to the risks in the economy,” Feldstein said from the Kansas City Fed’s annual conference in Jackson Hole, Wyoming. “The pluses are very small and the risks are very big.”

Some central bank officials have voiced concern this year that four years of record-low interest rates are overheating markets for assets from farmland to junk bonds. The Fed has kept the main interest rate near zero since December 2008.

Feldstein, a Harvard University professor and a top economic adviser in the Reagan administration, said the world’s largest economy is “limping along” and “we’re not moving at all.” He projected that gross domestic product will expand by about 2 percent this year “if we’re lucky.”

Minutes of the July 30-31 Federal Open Market Committee meeting released this week showed policy makers were “broadly comfortable” with Chairman Ben S. Bernanke’s plan to taper purchases this year if the economy strengthens, with a few saying a reduction may be needed soon.

Feldstein, 73, became a Harvard economics professor in 1969. He was chairman of President Ronald Reagan’s Council of Economic Advisers from 1982 to 1984. He led the NBER, whose Business Cycle Dating Committee determines when U.S. recessions begin and end, from 1977 to 1982 and from 1984 to 2008.

Before it's here, it's on the Bloomberg Terminal.