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By Steve Matthews and Anthony Massucci
Bloomberg News
POSTED: 04:30 p.m. EST, Nov 14, 2008
The U.S. economy is shrinking and will probably suffer more than a usual downturn in growth, said Federal Reserve Bank of Cleveland President Sandra Pianalto.
''The information I have been looking at tells me that the economy is now in a recession,'' Pianalto said today in a speech in Cleveland. ''At the moment, the signs point to a recession beyond just a "garden variety' downturn.''
The U.S. economy has slumped even as the Fed cut the benchmark interest rate in the past 14 months to 1 percent and provided more than $1 trillion in loans to banks and other financial institutions. Retail sales fell 2.8 percent in October, or the most on record, the Commerce Department said.
''The length and severity of the recession will depend on how quickly credit markets return to normal,'' Pianalto said. ''And there is evidence in some financial markets, such as inter- bank lending and commercial paper, that progress is being made.''
Fed Chairman Ben S. Bernanke said today in Frankfurt that central bankers worldwide are prepared to take more steps as needed to unfreeze credit markets. Amid signs of ''tentative improvments,'' markets continue to show ''strains.''
Pianalto, a voting member of the Federal Open Market Committee this year, has backed the majority in all decisions in 2008.
''Worsening of financial market conditions during the year, and especially since September, has profoundly affected my outlook for the economy,'' Pianalto said.
Economy Shrank
The U.S. economy may contract at a 3 percent annual pace this quarter, the median estimate in a Bloomberg News survey of 59 analysts this month. Economists don't expect growth to resume until the three months ending in September 2009. The economy shrank at a 0.3 percent annual rate last quarter, the most since the 2001 recession.
''The downturn in the housing market, of course, was the catalyst in driving the volatility in the broader economy and in freezing up the credit markets,'' Pianalto said. ''I am looking for housing prices to reach a bottom, and I don't think we are quite there yet.''
The Fed is forecast to reduce the federal funds target rate to 0.75 percent by the end of December and 0.50 percent in the first quarter, according to the Bloomberg survey.
''It's time to also be very aggressive with fiscal policy,'' Pianalto said in response to an audience question.
Lost Jobs
The U.S. unemployment rate rose last month to the highest level since 1994, the Labor Department reported last week. The U.S. has lost more than half a million jobs in two months and the unemployment rate climbed to 6.5 percent in October.
Pianalto didn't raise the specter of inflation today. In a May 13 speech she said rising prices were a top concern. Prices are increasing ''somewhat faster than I would prefer,'' she said then in Paris. ''Inflation presents a key risk to my outlook.''
The consumer price index was unchanged in September after falling in August for the first time in almost two years as declining fuel costs and a slowing economy cooled inflation. Prices increased 4.9 percent in the 12 months to September after a year-over-year gain of 5.4 percent in August.
The U.S. economy is shrinking and will probably suffer more than a usual downturn in growth, said Federal Reserve Bank of Cleveland President Sandra Pianalto.
''The information I have been looking at tells me that the economy is now in a recession,'' Pianalto said today in a speech in Cleveland. ''At the moment, the signs point to a recession beyond just a "garden variety' downturn.''
The U.S. economy has slumped even as the Fed cut the benchmark interest rate in the past 14 months to 1 percent and provided more than $1 trillion in loans to banks and other financial institutions. Retail sales fell 2.8 percent in October, or the most on record, the Commerce Department said.
''The length and severity of the recession will depend on how quickly credit markets return to normal,'' Pianalto said. ''And there is evidence in some financial markets, such as inter- bank lending and commercial paper, that progress is being made.''
Fed Chairman Ben S. Bernanke said today in Frankfurt that central bankers worldwide are prepared to take more steps as needed to unfreeze credit markets. Amid signs of ''tentative improvments,'' markets continue to show ''strains.''
Pianalto, a voting member of the Federal Open Market Committee this year, has backed the majority in all decisions in 2008.
''Worsening of financial market conditions during the year, and especially since September, has profoundly affected my outlook for the economy,'' Pianalto said.
Economy Shrank
The U.S. economy may contract at a 3 percent annual pace this quarter, the median estimate in a Bloomberg News survey of 59 analysts this month. Economists don't expect growth to resume until the three months ending in September 2009. The economy shrank at a 0.3 percent annual rate last quarter, the most since the 2001 recession.
''The downturn in the housing market, of course, was the catalyst in driving the volatility in the broader economy and in freezing up the credit markets,'' Pianalto said. ''I am looking for housing prices to reach a bottom, and I don't think we are quite there yet.''
The Fed is forecast to reduce the federal funds target rate to 0.75 percent by the end of December and 0.50 percent in the first quarter, according to the Bloomberg survey.
''It's time to also be very aggressive with fiscal policy,'' Pianalto said in response to an audience question.
Lost Jobs
The U.S. unemployment rate rose last month to the highest level since 1994, the Labor Department reported last week. The U.S. has lost more than half a million jobs in two months and the unemployment rate climbed to 6.5 percent in October.
Pianalto didn't raise the specter of inflation today. In a May 13 speech she said rising prices were a top concern. Prices are increasing ''somewhat faster than I would prefer,'' she said then in Paris. ''Inflation presents a key risk to my outlook.''
The consumer price index was unchanged in September after falling in August for the first time in almost two years as declining fuel costs and a slowing economy cooled inflation. Prices increased 4.9 percent in the 12 months to September after a year-over-year gain of 5.4 percent in August.
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Posted 04:59 PM, 11/14/2008
cleveland has its own fed??? oh thats needed
