Add Glenn Hubbard, one of the country’s leading conservative economists, to the list of those calling the Federal Reserve’s decision to hold interest rates steady last week a mistake.
“To my mind, the Fed should have exited,” said Hubbard during a speech to clients and employees of BBVA Compass on Thursday afternoon at the Denver Art Museum.
Current Federal Reserve chair Janet Yellen on Thursday told an audience at the University of Massachusetts to expect a hike in the benchmark rate by year’s end, barring any unexpected turns.
Hubbard echoed a call made Wednesday by Janus bond fund manager Bill Gross, who urged the Fed “To get off zero now!” in his monthly investment note.
Gross doesn’t see inflation as a threat but is more concerned that the zero-rate policy unfairly punishes savers, discourages investment and is holding back economic growth.
By contrast, Hubbard, dean of the Columbia Business School and a former chairman of the Council of Economic Advisors during George W. Bush’s presidency, does consider inflation a real threat.
He worries that by waiting to see the white of the eyes of rising prices, the Fed risks getting overrun — as was Arthur Burns, who held Yellen’s job in the 1970s.
Burns, now judged as one of the worst Fed chairmen in history, was once well-respected and viewed as a leading economic thinker in his day.
“Really smart people can miss the turning point,” Hubbard said.
On the other side of the debate are economists such as Larry Summers and Paul Krugman, who argue more needs to be done to create opportunities for those displaced from the labor force and to boost the stagnant incomes of working Americans.
Summers, considered a centrist, argues that the nation is locked in that will result in a much slower growth rate than seen in previous decades. More stimulus is needed, he says, not less.
Hubbard disagrees, arguing the U.S. economy has the potential to return to 3 percent growth rather than the 2 percent slog some are projecting.
More needs to be done to bring budget deficits under control, reform business taxes and to boost productivity, he said.
“If you get the long-term right, the short-term will take care of itself,” he said.
Hubbard predicts the U.S. economy will grow 2.5 percent over the coming year, while Europe will advance closer to 1.5 percent.
Aldo Svaldi: 303-954-1410, asvaldi@denverpost.com or @aldosvaldi
