Federal Reserve and Merrill Lynch: Greater than 50-50 odds of a recession in the next year

[bigtree]

BUSH today: "You might remember the debate. All the Democrats in Washington predicted the tax cuts would not create jobs. They predicted they would not increase wages, and they predicted the tax cuts would cause the federal deficit to explode. Well, the results are in. (Applause.) The tax cuts have led to a strong and growing economy." (Applause.)

http://www.whitehouse.gov/news/releases/2006/11/20061103-2.html


Fed and Merrill: Possibility of Recession Increasing

The U.S. economy is ``on a knife's edge,'' and growth may slump to less than a 2 percent pace next year unless the Federal Reserve cuts interest rates, according to Merrill Lynch & Co. economists.

``Our recession-risk indicator is now at 51 percent odds for an actual economic downturn in the coming year,'' writes David A. Rosenberg, chief North American economist at Merrill Lynch in New York, in a note today. The last time the indicator registered that high was in the recession year 2001. product growth, adjusted for inflation, compared with Rosenberg's forecast of 2 percent growth in 2007 (the blue line). The 10-year trend in real GDP growth is shown in green.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ar6Maa4H.EMc&refer=home




Recession odds growing, Fed model shows

Yield curve model shows 50% odds of slowdown


"The odds of a recession in the United States in the next year are now greater than 50-50, according to a simplified version of a model developed by an economist at the Federal Reserve.

The model, which relates the shape of the yield curve to the Fed's interest rate target, has been extremely accurate at predicting recessions in the past. But economists who study the business cycle say the model may be delivering a misleading message today.

Fed economist Jonathan Wright developed the model in a paper published earlier this year, based on research by, among others, new Fed Gov. Frederic Mishkin and New York Fed economist Arturo Estrella. Read his paper: (http://www.federalreserve.gov/pubs/feds/2006/200607/200607abs.html)

If bond yields stay at current levels for the next three months, Wright's model would predict a recession. Current yields have been in a recession-zone for only a day so far.

In Wright's model, a steep, sustained inversion of the yield curve, combined with a relatively high federal funds rate, would point to a recession."

http://www.marketwatch.com/news/story/story.aspx?siteid=mktw&guid=%7B5EB8B86E-BED6-470E-870A-2DB30BECA921%7D


http://journals.democraticunderground.com/bigtree

[razors edge]

1. The fed is stuck

between a rock and a hard place, Incomes rose something like 5% while productivity stayed flat up through September. They are thinking they will have runaway inflation if they don't raise rates more.

[BelgianMadCow]

2. Nice contrast. The "economy is good" theme needs to be struck down - Rd