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US Faces Severe Recession, Feldstein Says

The United States has entered a recession that could be "substantially more severe" than recent ones, former National Bureau of Economic Research President Martin Feldstein said

Friday.

"The situation is very bad, the situation is getting worse, and the risks are that it could get very bad," Feldstein said in a speech at the Futures Industry Association meeting in Boca Raton, Florida.

NBER is a private sector group that is considered the arbiter of U.S. business cycles.

Feldstein said the federal funds rate is headed for 2 percent from the current 3 percent.

He added that lower short-term rates from the Federal Reserve would not have the same impact in the current downturn, in terms of reviving economic activity.

"There isn't much traction in monetary policy these days, I'm afraid, because of a lack of liquidity in the credit markets," he said.

The Fed's new credit facility, announced on Tuesday, "can help in a rather small way ... but the underlying risks will remain with the institutions that borrow from the Fed, and this does nothing to change their capital," Feldstein noted.

Feldstein noted "powerful forces (that) will continue to drive inflation higher." And while inflation expectations are still relatively well contained, "you wonder how long that's going to last," he said.

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