the weak US economy

Harvard economist Martin Feldstein is worried about weak consumer demand in the US economy.

The American economy has recently slowed dramatically, and the probability of another economic downturn increases with each new round of data. ….

Businesses have responded negatively to the weakness of household demand, with indices maintained by the Institute of Supply Management falling for both manufacturing and service firms. ….

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.

Martin Feldstein, “What’s Happening to the US Economy?”, Project Syndicate, 29 June 2011.

Professor Feldstein (born 1939) was chairman of the Council of Economic Advisers and chief economic advisor to President Ronald Reagan from 1982 to 1984.

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