Martin Feldstein, who heads the group that is considered the arbiter of U.S. recessions, told CNBC that he believes the U.S. has been sliding into a recession since December or January.
“I think the professional forecasters have been a little slow to come to the recognition that we’re in a recession,” Feldstein said in a live interview.
Feldstein, president of the National Bureau of Economic Research, said the downturn could go on longer and deeper than the two most recent recessions.
He also said the U.S. gross domestic product would be a misleading, positive number.
“But within this quarter, we’re seeing the monthly numbers coming down,” he said. “As I said, employment, sales, production, all of that are trending down at this point.”
Feldstein said he expects a bounce in the second half of the year as rebates roll out. But, he cautioned not to count on consumer confidence.
“And indeed it runs the risk that those checks will go to paying down credit card debts and other kinds of debts, building up liquidity as people prepare themselves for possible hard times ahead.”
Although the Fed is injecting liquidity into the markets, Feldstein said, they are not dealing with the fundamental issue: the excess of negative equity mortgages.
“They’re providing a little bit of liquidity, but they’re not dealing with the fundamental problem of this wave of potential defaults on mortgages which we’re yet to see, but which I think will become a reality as house prices continue to come down.”
Feldstein noted that further interest rate cuts would not have a significant impact at this point.
“Lower interest rates work by—they will help, but the usual way which lower interest rates push the economy is by expanding housing,” he said. “Well, with the housing market in it’s current situation with the vast overhang of unsold houses, another 50 basis points on the Fed Funds rate isn’t going to do much.”
The National Bureau of Economic Research, a non-profit research organization, typically declares start and end dates for U.S recessions. This group has not officially declared the economy is currently in a recession.