On his market outlook: "I think we're marching again to a future financial crisis. It's very difficult under the current arrangement to hold the risk-taking in check. We have relatively low interest rates, which makes the arbitraging of risk-taking as an incentive. We have the ability of lower-quality borrowers to be in the market, which also increases the risk-taking. And the central bank is having great difficulty in taking hold over the magnitude of risk-taking, no matter what the legislation has produced, unfortunately."
"If in two years or so we are close to a recession, which I think we will be, that's the end of the liquidation of those securities. The Fed will be back as a buyer," he added.
Kaufman is president of Henry Kaufman and Company, an economic and financial consulting firm established in 1988. He previously served as head of research and in the senior management of Salomon Brothers and worked at the Federal Reserve Bank of New York.
The economist was three times designated one of the 30 most influential Americans by US News & World Report.
On the rising role of the Federal Reserve: "The central bank's involvement in the financial market and the system is not going to diminish. It's going to be as high if not bigger than it is today. As long as you have very large institutions that are so highly concentrated and so highly focused, the central bank is going to have to play an increasing role in managing those assets and liabilities. Actually, commercial banks don't want to admit it, but very large institutions are the wards of the central bank."
He also discusses:
- The Great Moderation and globalization.
- Structural changes in the financial markets.
- Forecasts for interest rates.
The interview is exclusively for CNBC PRO subscribers.