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December 11, 2009

Economy is in 'Recovery Phase'

Catherine New
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Dean Glenn Hubbard borrowed from Dirty Harry to deliver “the good, the bad and the ugly” about the economy in a community forum with students on December 8. He also detailed his economic forecast on CNBC on December 10 (video above).

Looking ahead to 2010, Dean Hubbard predicted GDP growth of around 3.5 percent in the coming year and said the U.S. economy is in the recovery phase. However, he noted that this is far less than previous post-recession bounces. He based this view on such positive signals in the economy as improvements in inventory, rising profits, improving market conditions and confidence. “We have a chance for a reasonable recovery,” he said, “although it is well below historical standards for a recession.”

Hubbard said that unemployment was unlikely to fall beneath 9.5 percent. “If you really want to have an impact on the job market, you have to get the economy going again,” he said on CNBC. “Get more credit to small businesses and stop talking of tax increases and healthcare insurance mandates on small business.” He said the job market could be helped by lowering economic uncertainty and continuing work with banks for credit.

Dean Hubbard said the “ugly” includes the potential wild cards of public policy and the Fed’s next steps. He added that he was concerned about the deficit at 10 percent of GDP because it could, if left unattended, significantly raise the real interest rate.