U.S. economy faces risk, not recession: Fed
Nov 09, 2007 04:30 AM
MARK FELSENTHAL
REUTERS NEWS AGENCY
WASHINGTON–Federal Reserve chair Ben Bernanke told lawmakers yesterday the U.S. economy did not
appear headed for recession, but warned growth could prove weaker than expected and inflation higher.
"Our assessment is for slower growth, but positive growth, going into next year," Bernanke said in a
status report on the economy's health to the congressional joint economic committee.
The Fed chair said the economy is likely to experience ``noticeably" slower growth in the final three
months of the year than the robust 3.9 per cent annual rate in the third quarter, saying a housing slump
looked set to intensify and consumer and business spending could slow.
However, he said, the U.S. central bank expects the world's largest economy to regain steam by the
middle of next year as housing and financial markets stabilize.
Financial-market strains have persisted since the Fed's last meeting on Oct. 30-31, when it cut interest
rates by a quarter-percentage point to 4.5 per cent, he said. Further sharp gains in oil prices have put
renewed upward pressure on inflation and may further crimp economic activity, he added.
Bernanke's cautionary notes on growth weighed on stock prices and the U.S. dollar and gave a lift to
prices for U.S. government debt, as traders saw it suggesting a greater likelihood of interest-rate cuts.
Investors who are worried that the U.S. economy may be sinking toward a recession have been betting in
futures markets that the Fed will cut rates by a further quarter-point at its next meeting on Dec. 11.
Some analysts said Bernanke's testimony suggested a willingness at the Fed to consider further rate cuts,
while others saw it as finely balanced between concerns about growth and concerns that inflation could
quicken.
"They are pulled in two directions," said Christopher Low, chief economist for FTN Financial in New York.
"They are worried about the economy. They are worried about inflation. Bernanke is in a box and it is
getting smaller."
At its most recent policy-setting meeting, the central bank said downside risks to growth were roughly in
balance with upside risks for inflation, a statement that led many observers to believe the Fed would hold
off lowering rates.
Recession risk grows, U.S. group says
Business forecast says ailing housing and credit markets are likely to sap the economy's energy
Nov 19, 2007 04:30 AM
JEANNINE AVERSA
ASSOCIATED PRESS
WASHINGTON–The painful collapse of the U.S. housing market along with the credit crunch will weigh
down economic growth in the final three months of this year and cause economic activity to lag in 2008.
It all means that the risk of a recession has increased, economic forecasters say.
The latest look-ahead from the National Association for Business Economics says the gross domestic
product is on track to expand at just a 1.5 per cent pace from October through December. If that proves
correct, it would mark a sizable decline from the July-September rate of 3.9 per cent.
The group's new fourth-quarter projection compared with September's prediction of a 2.5 per cent growth
rate. The GDP – the value of all goods and services produced in the United States – is considered the best
barometer of the country's economic fitness.
For all of this year, the forecasters expect the economy to grow by 2.1 per cent, which would be the
weakest showing since 2002. Back then, the economy was emerging from a recession and grew by 1.6 per
cent.
The association downgraded its growth forecast for next year, putting it at 2.5 per cent, down from an
earlier projection of 2.8 per cent.
"While the U.S. economy faces a higher risk of recession from credit markets, housing and energy prices,
NABE's panelists still do not see recession as the most likely outcome," said Ellen Hughes-Cromwick, the
group's president and chief economist at Ford Motor Co.
U.S. Federal Reserve Board chairman Ben Bernanke, in a recent congressional appearance, put Wall
Street, Main Street and politicians on notice that the economy was in for period of lethargy. He said
economic growth would "slow noticeably" in the final quarter of this year and was seen as "remaining
sluggish" during the first part of 2008.
In the NABE survey, about three-fifths of the forecasters put the odds of recession starting over the next
year at less than one-in-three. About one-in-five sees the risk at greater than 50 per cent.
"Spillovers from housing weakness to broader consumer spending, along with credit-market tightening,
are seen as the most likely recession triggers," the report said.
By a rough rule of thumb, a recession occurs if there are two consecutive quarters when the economy
shrinks. The National Bureau of Economic Research, the recognized arbiters for dating recessions, uses a
more complicated formula that takes into account factors like employment and income growth.
Currently, the overriding worry is that consumers will cut back sharply, sending the economy into a
tailspin. The danger is that the severe housing slump, weaker home values and harder-to-get credit, and
other problems could spook consumers.
The wild card in the outlook is oil prices, which hit a record $98.62 (U.S.) a barrel in recent weeks.