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U.S. economy has 'little room for error’: Dan Gross

Dan Gross, a columnist and editor at The Daily Beast and author of Better, Stronger, Faster, has been bullish on the U.S. economy for years, though he waived red flags in March that the U.S. could be headed toward a "substantial" slowdown.

The government's first-quarter GDP revision caught many economists off guard this week and raised concerns that the tepid economic recovery may be over. U.S. growth contracted by 2.9% versus earlier an estimate of -1%. It was the worst quarter since Q1 2009.

Related: This is the biggest problem for the economy: Fannie Mae chief economist

Gross says last-quarter's dismal GDP reading was a "mulligan" ("We're allowed one per year," he quips) and the nation's decision makers are looking forward, not back. The weak GDP report will not deter the Federal Reserve from continuing with its current policy prescriptions, he notes.

Related: Shiller: Rising rates won't crush housing

Gross points out that the decline in economic output comes at a time when both the Fed and the federal government are tightening. The Fed's $10 billion per month taper will continue through October; the federal government's cutbacks in spending have helped the federal deficit drop by billions of dollars. The Treasury is also collecting higher tax revenues as more Americans go back to work.

Financial markets shook off Wednesday's GDP report, ending the session modestly higher. Gross argues that an external shock -- one much larger than a gloomy GDP report -- could knock stocks from their all-time highs.

"We have comparatively little room for error," he warns.

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