“Harvard University economics professor Martin Feldstein said the U.S. economy may fall into a recession next year even if Congress and President Barack Obama avert the full brunt of the so-called fiscal cliff.
“You are perilously close to the edge of another recession even if we don’t go over the fiscal cliff,” Feldstein said in a Bloomberg Television interview from New York. The end of payroll tax cuts will reduce gross domestic product by about 1 percentage point in 2013, and other tax increases and spending cuts may bring “over 2 percent of GDP tightening,” he said.
Feldstein was less optimistic than Federal Reserve Chairman Ben S. Bernanke, who said a fiscal agreement “could help make the new year a very good one.” Feldstein was one of two economists to question the central bank’s leader after his prepared remarks Tuesday to the Economic Club of New York.
The fiscal cliff refers to the $607 billion of tax increases and spending cuts that will kick in automatically next year unless Congress acts. The Congressional Budget Office said in an Aug. 22 economic report that fiscal tightening of that magnitude could cause a recession.
With the economy growing at less than a 2 percent rate, that may be too small of a cushion to withstand fiscal tightening resulting from a budget agreement, Feldstein said.
In response to Feldstein’s questioning about the impact of a budget agreement, Bernanke said “there’s a range of possibilities” for outcomes of the fiscal negotiations, though “some plausible scenarios” would result in “relatively contractionary fiscal policy overall.” The Fed chief said “what I’m particularly concerned about is that we avoid the full force of the cliff.”
Broadcast Interview”
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