The likelihood of a double-dip recession is diminishing, and the economy is expected to exhibit sustained yet not “spectacular” growth, Frederic Mishkin, former Federal Reserve Board governor and professor at the Columbia Business School told CNBC on Thursday.
“In this case, what we’ve seen happen, the financial markets are steadily improving, the drag in the economy for the financial sector has weakened to a great extent; it’s still there,” he said. “So, there’s really nothing in the fundamentals that would indicate a double-dip recession.”
Even though the economy is currently improving and inflation pressures remain contained, the Federal Reserve should uphold its accommodating policy for the time being, Mishkin said.
But Mishkin said the real challenge for the economy will be when the Fed must tighten its stance.
While some blame the Fed for creating the housing bubble as a result of lax monetary policy, Mishkin said, credit booms are rather a result of not enough macro-prudential supervision and regulation.
“Nobody is going to be able to predict bubbles and to be able to always deal with them,” said Mishkin. “This is part of the capitalist system where you have booms and busts and it’s very hard to get this exactly right. What is very important here is that we avoided a depression. We got damn close here, and that’s very, very important news.”