The Fed: To Hike or To Hold?

Martin Feldstein, professor of economics at Harvard University and former chairman of President Ronald Reagan's Council of Economic Advisers, offers his take on stocks and what the Federal Reserve should do in 2016.

MARTIN FELDSTEIN: The Fed should understand that they pushed up share prices. That was the strategy of unconventional monetary policy in order to get a boost to the economy. That worked. We were in a very slow increase until 2013. And then, thanks to the Fed policy, shares jumped, people felt wealthier and went out and spent more. And the pace of GDP growth picked up. But, that's not a reason to believe that share prices are going to stay permanently higher relative to earnings.

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We're at full employment now, 4.9 percent unemployment rate. Among college graduates, it's about 2.5 percent. The Fed should be more relaxed about that and should recognize that they generated an artificially-high price level for shares, artificially-low long-term mortgage rates, artificially-high prices for commercial real estate, and the air has to come out of the balloon.