October 1, 2002

The shift away from stocks to safer assets such as bonds is global in scope, not simply a U.S. phenomenon, and reflects growing aversion to uncertainty and risk, says Glen Hubbard, chairman of President Bush's Council of Economic Advisers.

In September 30 remarks in Washington to the National Association of Business Economists (NABE), Hubbard said part of the uncertainty concerns economic recovery in the United States.

Another part concerns whether Congress will pass legislation proposed by Bush to make the 2001 tax cut permanent, provide terrorism risk insurance, and exercise spending restraint, he said.

Countering higher aversion to risk by stock investors, he said, the president has cut tax rates, proposed more tax cuts and directed federal government money into basic research.

Hubbard cited evidence that higher productivity and low inflation continue to characterize the U.S. economy, boding well for continued expansion. Easy money-supply policy during 2001 from the Federal Reserve should continue stimulating the economy into 2003, he said.

"A mechanical assessment of investment factors suggests conditions primed for investment to begin to recover," Hubbard said. "The wild card, of course, is the timing and pace of this recovery, which likely hinges on the extent of business confidence."

He rebutted predictions that the U.S. economy would fall victim to a second recession, deflation or both. He said there was too much focus on the rising U.S. budget deficit, arguing especially against any proposal to raise taxes.