Double-Dip, Rate Spike 'Danger' Looms: Ex-Fed Governor

Markets opened lower on Thursday after the US government said weekly jobless claims rose more than expected last week. What should investors expect for stocks going forward? Robert Heller, former Federal Reserve governor, and Kathleen Stephansen, chief economist at Aladdin Capital Holdings, discussed their market outlooks.

“A double dip recession is still very much in the cards,” Heller told CNBC.

“The big elephant in the room is the huge federal deficit, and that will eventually will force up interest rates. And as interest rates go up, it will kill both businesses and consumer recovery.”

Therefore the economy is likely to weaken again, said Heller. He expects a spike in interest rates in the near future, which he described as the "danger" awaiting investors.

In the meantime, Stephansen said she expects the Fed to raise interest rates at the end of the third quarter and said there’s still a lot of uncertainty in the economy.

“He was very careful in mentioning that it’s a nascent recovery that’s aided by two factors—and those two are transient—inventory cycle and fiscal policy support,” she said, referring to Bernanke’s speech on Wednesday.

“Once these effects fade—and they are likely to fade towards the second half of the year—we must see evidence of the other sectors of economy to have essentially brought in the growth momentum.”

“If that’s not taking place, then the Fed will have to reassess the situation in terms of the speed of normalization of interest rates, and even if they need to—come back to the asset purchase program,” she added.

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No immediate information was available for Heller or Stephansen.