Magazine article American Banker

Some Economists Give Recession in '96 at Least an Even Chance

Magazine article American Banker

Some Economists Give Recession in '96 at Least an Even Chance

Article excerpt

The R-word - recession - is beginning to creep into more economists' scenarios for the year.

Until recently, most economic forecasters carefully avoided the term, and many still do.

But the lackluster Christmas selling season appeared to change things.

The chances of a recession this year were recently raised to 40% by Edward Yardeni, chief economist at Deutsche Morgan Grenfell/C.J. Lawrence Inc., New York.

In fact, Mr. Yardeni did not rule out the possibility that the economy is already in a mild type of downturn called a "growth recession." A slightly more likely scenario, at 50%, is that the economy will plod along at a lackluster rate.

The Levy Economics Institute at New York's Bard College puts the odds of a 1996 recession at 50%. So does Philip Braverman, chief economist at DKB Securities, New York.

A. Gary Shilling, the economist and money manager, pegs the chances of recession at an even higher 60%. With job growth much slower than a year ago, he doubts that consumers will ride to the rescue this time.

These economists share the view that the Federal Reserve has kept short term interest rates too high for too long and, as such, is still pressing a tight monetary policy in the face of economic weakness.

"The Fed was much less aggressive in lowering interest rates last year than I felt was necessary to avoid a recession this year," Mr. Yardeni said

Last year the central bank lowered the federal funds rate by 25 basis points on July 6 and Dec. 19. Mr. Yardeni called that level of action "very puny."

The economist speculated that Fed chairman Alan Greenspan fears lower rates "might incite a speculative buying frenzy" for stocks. …

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