That the Federal Reserve Bank lowered the Fed funds and discount window rates this morning is old news; but now UBS has officially changed its outlook today and is predicting a U.S. recession.
“The ball started rolling with the recession-like rise in unemployment in December,” says Jim O’Sullivan, UBS chief U.S. economist, adding that last month’s decline in the CEO confidence index, combined with a slipping stock market and weak jobs report have tipped the balance. “It’s just the sense that businesses and consumers are getting more cautious. And the down turn in housing is starting to feed on itself,” he says, adding that he anticipates recovery in the second half of 2008.
O’Sullivan also notes that today is the first time since 9/11 that the Fed has done an inter-meeting rate adjustment. “Certainly the market has calmed down today. The market is only down a little over 1% [down] now, when we were looking at minus 5%,” this morning, he says. He also is expecting another rate 50 basis point cut at the Federal Open Market Committee meeting on Jan. 29.
“At this point, if we are moving into recession, it’s just limiting how bad it will be, rather than affecting whether we are going to have a recession. They are worried obviously and they are trying to get in front of this. There has been some criticism that they are moving too slowly, but I think they are showing some aggressiveness here.”
Since Bernanke’s testimony on Jan. 17, suddenly there is a consensus between the President and the Congress that we need a financial stimulus package. “The mood has changed dramatically in the last couple weeks,” he says. “In the end, it should at least limit the weakness,” he says, but whether it is enough to avert a recession remains to be seen.
Tags: basis point, Fed funds, FOMC, recession
