Newspaper article THE JOURNAL RECORD

Market Analysts, Economists Start Quietly Talking about Recession

Newspaper article THE JOURNAL RECORD

Market Analysts, Economists Start Quietly Talking about Recession

Article excerpt

"It comes up in every meeting," said Jeffrey Applegate, chief U.S. strategist at Lehman Brothers. "Jeff, what is the risk of a hard landing?"

Thomas Galvin, chief investment officer at Donald Lufkin & Jenrette, and Douglas Cliggott, U.S. equity strategist at J.P. Morgan Securities, are both hearing the same question, one that has been popping up in client meetings since the Federal Reserve raised its short-term interest rate target by half a percentage point, to 6.5 percent on May 16.

"There is a growing minority that believes the Fed could prove to be too heavy-handed, too aggressive," said Galvin.

"It's a question that is being asked a lot more and it makes sense," Cliggott added. "It's going to be tough to land this thing gently," he said, referring to attempts to slow America's rapid economic growth without triggering a recession.

A recession?

Yes, a recession. The mere fact that the big clients of these equity strategists are asking the question shows just how quickly the mood in the stock market has changed.

Applegate, Galvin and Cliggott do not think that a recession is likely, but they acknowledge that the risk has risen.

This is because real signs of inflationary pressures as well as the refusal, so far, by the American economy to slow down appreciably, is already forcing the Fed to be aggressive in raising interest rates. And that just increases the risk of a mistake, that is, a recession.

This mood change helped fuel the stock market selloff since the Fed's rate increase. The Nasdaq index is off 9.7 percent since then, while the Dow Jones Industrial Average has fallen 3.9 percent and the Standard & Poor's 500 index has dropped 3.9 percent.

Edward McKelvey, senior economist at Goldman Sachs, said the mood change was "all rooted in an increasing amount of evidence that the labor market is too tight for comfort," which forced the Fed to be more aggressive. …

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