US economy may go into recession, warns Krugman

US economy may go into recession, warns Krugman

Nobel laureate Paul Krugman said the US economy may be heading into a recession at a time when the US Federal Reserve doesn’t have the firepower to properly combat a slump.

“There seems to be an accumulation of smaller problems and the underlying backdrop is that we have no good policy response,” he said in an interview in Dubai.

The headwinds facing the economy prompted the Federal Reserve this month to halt its interest-rate hiking cycle, which Mr Krugman said was never “grounded in the data” to begin with.

“Continuing to raise rates was really looking like a bad idea,” he added. Mr Krugman isn’t alone in seeing a gloomy outlook for the world’s biggest economy.

US chief financial officers in a Duke University survey published in December, overwhelmingly said they expect a recession within two years.

“I wouldn’t be as definitive, but it seems pretty likely,” Mr Krugman said.

While Mr Krugman doesn’t expect a crisis of the magnitude of 2008, he said policymakers in Washington would struggle to contain large shocks.

The economist, a vocal critic of the President Donald Trump administration, said that it was hard to see the US leadership “respond in any kind of a nimble way”.

“We’re clearly in worse shape,” he said, citing lower public debt in 2008 and “lots of room” to lower interest rates back then.

“And we (the US) came into the last crisis with pretty remarkable leadership,” Mr Krugman added.

“Let’s put it this way, our current Treasury Secretary is no Hank Paulson.” 

Mr Krugman coined the phrase “leprechaun economics” after revised official figures almost three years ago showed the Irish economy surging by over 26%.

Meanwhile, Capital Economics in London predicts that the US economy will see “a marked slowdown” even if the US central bank were to stop hiking rates.

“Even if the Fed has stopped hiking interest rates sooner than we originally envisaged, we doubt that will prevent a marked economic slowdown this year,” the economics firm said.

- Bloomberg. Additional reporting Irish Examiner

More on this topic

Iran’s claimed arrests of 17 CIA spies ‘totally false’, says TrumpIran’s claimed arrests of 17 CIA spies ‘totally false’, says Trump

Power restored in some areas amid New York heatwavePower restored in some areas amid New York heatwave

Number of students travelling to US on J1 declines sharply in recent yearsNumber of students travelling to US on J1 declines sharply in recent years

Family of Corkman facing deportation say minor drug charge shouldn't force him out of USFamily of Corkman facing deportation say minor drug charge shouldn't force him out of US

More in this Section

Not enough businesses signed up for post-Brexit paperwork, bosses warnNot enough businesses signed up for post-Brexit paperwork, bosses warn

Cork Chamber gets in summer spiritCork Chamber gets in summer spirit

Law firm Comyn Kelleher Tobin promotes three new partnersLaw firm Comyn Kelleher Tobin promotes three new partners

Shane Lowry’s sports agent Horizon also gets in the profits swingShane Lowry’s sports agent Horizon also gets in the profits swing


Lifestyle

Robert Plant and Saving Grace review: Top class ensemble made for a memorable night at the Everyman in Cork, writes Joe DermodyGig review: Robert Plant and Saving Grace at the Everyman

Kya deLongchamps is mesmerised by early French glass paperweightsIn a bubble: The glittering history of French glass paperweights

During my first pregnancy I developed a network of spider veins on my thighs. Even more appeared during my second pregnancy. What would you recommend?How do I deal with spider veins in pregnancy?

More From The Irish Examiner