Fed hints at recession
Federal Reserve Chairman Ben Bernanke strongly hinted Thursday that the central bank will likely lower interest rates in a significant fashion in hopes of forestalling a recession.
The Fed chief’s comments suggested that negative growth has become a greater concern for the Federal Reserve than inflation.
He said the outlook for housing demand continues to worsen due to problems in the mortgage market, and that tighter credit, high oil and food prices and reduced home equity could dampen consumer spending.
Rate cuts are expected to further weaken the U.S. dollar.
The news came after the Commerce Department last week reported unemployment had risen to 5 percent, the highest level in two years and the same day that figures released by the nation’s top retailers showed their worst holiday sales for December in three years. Sales were down 7.9 percent at Macy’s, 7.5 percent at J.C. Penney and 5 percent at Target.
Three large investment banks — Goldman Sachs, Morgan Stanley and Merrill Lynch — are now forecasting a recession in the first half of the year.
Goldman Sachs went so far as to suggest that the nation may already be in a recession and predicted unemployment would rise to 6.25 percent and corporate profits fall 7.5 percent after taxes by the end of the year. Economists say a recession hinges on whether U.S. consumers continue spending, but there are many signs that people are already pulling back.
The predictions are in contrast to one from the U.S. Chamber of Commerce this week that growth would slow to a crawl, but the economy would avoid a recession. ' Eric Kulisch
Fed hints at recession
