Paul Krugman: The US economy is going into recession, but there is no proper response

Nobel Prize-winning economist Paul Krugman believes the US economy is facing a recession at a time when the Federal Reserve does not have enough firepower to respond appropriately to a potential weakening.

“There seems to be less trouble, and we have no good policy in the back”, said Paul Krugman in an interview.

The economic downturn has forced the Federal Reserve to pause the cycle of interest increases, which, according to Krugman, has not been based on data from its very beginning. “The continuation of the increase in interest really seemed like a bad idea”, added he.

The economist is not the only one who predicts a darker picture of the largest economy in the world. A study by the Duke University in December suggests that recession in the country may be expected within the next two years.

“I would not be so categorical, but it seems very likely”, said Paul Krugman

And while he is not expecting a crisis with the size of those from 2008, he says politicians in Washington will still have difficulty coping with some bigger shocks.

The economist, who is also one of US President Donald Trump’s critics, said he did not see the US government “acting swiftly” against possible risks.

“We are certainly in a worse form”, Krugman said, exemplifying the lower public debt in 2008 and the “wide scope” of action to cut interest rates at the time. “And we have entered the last crisis with quite impressive leaders”, he added, pointing out that “the current finance minister is not Hank Paulson”, said the economist having in mind Steven Mnuchin’s predecessor during the reign of George Bush Jr.