Fed on its toes to pull US out of ‘recession’

New York: US President George W Bush is expected to reiterate his administration's view that the fundamentals of the world's biggest economy are still strong.

But the growing chorus among economists and market analysts is of a recession. Will the US Federal Reserve provide another stimulus shot at a key meeting next week?

Economy watchers agree that the US is either heading towards a recession or is in one already.

The continuing housing slump, the spillover from the sub-prime mortgage crisis, coupled with fewer jobs and soaring energy costs are dragging down growth.

Recent moves by the US Federal Reserve have brought some relief, and the Fed is expected to act again this month.

“My outlook is that the Fed cuts interest rates another 50 basis points at the next meeting, followed by another 25 basis points at the April meeting. Clearly inflation is a bit of a concern here, though inflation does lag growth," Executive Director, Economic Research, JP Morgan Chase, Michael E Feroli says.

"I think as growth softens here in the first part of the year, the Fed will perceive that inflation risks are ebbing a little and that should give them the flexibility they need to continue to provide policy accommodation,” Feroli adds.

Even with the Fed's help, however, the US economy looks set to get worse before it starts to rebound.

“At this stage of the game you can lower interest rates, you can do a stimulus package. That might work at the margins. But basically this is a case of where the patient has to get better on his own. It's not getting much effective medicine from monetary fiscal policy,” Economist, The Conference Board, Ken Goldstein says.

But will Wall Street mirror the economy? Not necessarily, according to experts.

“We're not going to see vibrant economic conditions for probably another year and a half. That does not mean however that corporate profits have to decline precipitously. I don't think they will, in fact our projection is that corporate profits will grow but a little slower than they have," Chief Economist, Nomura Securities, David H Resler says.

"My suspicion is that stock prices will move up from here gradually over the year, ending the year higher than they are today by five to 10 per cent,” Resler adds.

Wall Street is again looking for an interest rate cut at the Federal Open Market Committee meeting next week. But the US Fed could find its options limited by the weakening labor market and the continuing upward spiral in oil prices.

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#US Federal reserve #recession #George W Bush