Economy

Dangers of Fed's way-too-low rates: Reagan adviser

Feldstein's Fed policy warning
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Feldstein's Fed policy warning

Artificially low interest rates are dangerously luring investors into taking risks they wouldn't otherwise take, said Martin Feldstein, chairman of the Council of Economic Advisers under President Ronald Reagan.

"Very low interest rates are driving lenders into taking risks, low-quality loans [and] investors into buying junk bonds with low spreads," he told CNBC's "Squawk Box" Monday.

Federal Reserve Chair Janet Yellen used her Friday speech before the central bank's Jackson Hole summit to show that she's not as dovish as the markets believe, the Harvard professor argued.

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While Yellen did not reveal secrets about the Fed's next move, Feldstein said, she made it clear that it's "not out of the question" that rates could go up sooner than next summer, which is the time frame that many economists believe could be the start of normalizing monetary policy.

The former Reagan adviser said there's "good reason to think interest rates are too low." He points to what he sees as building inflation pressures. He cited the consumer price index's 2 percent rise in the 12 months ending in July.

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Feldstein sees economic growth of around 3 percent for the rest of the year.

—By CNBC's Matthew J. Belvedere.