The combination of aggressive Federal Reserve rate cuts and Washington’s fiscal stimulus would suggest officials believe a recession has begun. The media also seems to be playing up the recession story. It would seem like a forgone conclusion, but it is not, no matter how loud the talking heads on TV scream about it or how many times the word recession is used in the press. In fact, because of the lack of an agreed upon definition of recession in real time, it might be best to avoid its use. Across asset classes, the main issue is what kind of landing the US economy will experience. Will it be short and shallow or long and deep?
Friday, January 25, 2008
Friday, January 18, 2008
There is little doubt that the G7 economies are slowing. Recession fears have mounted the most in the US, where policymakers are responding with both monetary and fiscal stimulus. Canada has eased monetary policy and will most likely do so again next week. There has been some fiscal assistance to local governments where the economy depends on a single industry and the minority Conservative government is facing calls for additional fiscal support. The Bank of England also cut rates at the end of last year and is widely expected to cut rates again next month. While recognizing the downside risks to growth, the European Central Bank remains concerned about the upside risks to inflation. The market does not expect the ECB to cut rates until Q3, though we suspect it could come in late Q2.
Friday, January 11, 2008
Frequently the cottage industry, that includes journalists and economists, come up with post hoc explanations for economic phenomenon, using words and phrases which after a while lose much of their original significance. Examples last year included yen-carry trades and risk-aversion. Now the words recession and stagflation are being bandied about, with little effort to define one’s terms.