The US Federal Reserve this week releases its updated economic forecast likely to show tepid growth for most of this year but probably not a recession, thanks to rate cuts and a big stimulus effort.
The forecast set to be released today along with minutes of the Fed's Jan. 30 to Jan. 31 monetary policy meeting is part of a new policy set by Chairman Ben Bernanke to provided more frequent economic updates.
Bernanke told a congressional hearing last week that the forecast would be lower than the forecast released late last year of a range of 1.8 percent to 2.5 percent growth on average for the year.
He told the Senate Banking Committee a US$168 billion economic stimulus plan, which aims to boost consumer and business spending, would help lift growth later this year.
"At present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt," Bernanke said.
In response to a question, Bernanke said the Fed would release its new economic outlook that "will show lower projections of growth, and they'll be reasonably consistent with what we're seeing with private forecasters."
Societe Generale economist Stephen Gallagher said he expects a year-over-year growth rate of 1.2 percent to 1.6 percent for GDP, which "would be consistent with private forecasts and forecasts of the CBO [Congressional Budget Office]."
He said that even though many private economists are predicting a recession -- generally seen as two consecutive quarters of declining activity -- he does not see the Federal Open Market Committee (FOMC) making such a forecast.
"Even FOMC members at the weak end of expectations in the October 2007 forecasts might be reluctant to now officially forecast a negative GDP reading, even if they make downward revisions," Gallagher said.
Yet the latest Fed forecast -- which was provided to policymakers last month -- may be stale since it did not take into account the impact of a stimulus plan, some analysts said.
The Congressional Budget Office last week upgraded its outlook to show 1.9 percent growth this year from 1.7 percent, while lowering its projection for next year to show 2.3 percent expansion instead of 2.8 percent.
The shift is expected because some consumer and business spending will be drawn this year due to the impact of the stimulus plan. Another factor is the Fed's aggressive rate cuts, which have brought the base federal funds rate to 3 percent from 5.25 percent last September.
Economist Ethan Harris at Lehman Brothers said that the stimulus will provide a chopppy impact.
"We look for a W-shaped trajectory in GDP growth with the economy threatening recession in early 2008 and early 2009. However, we still think the economy will skirt recession due to timely monetary and fiscal policy," he said.
Other analysts say it may be too late to prevent a recession.
"Market hopes are pinned on the fiscal stimulus package giving the economy enough of a lift to avert a recession," Merrill Lynch economist Sheryl King said.
"Unfortunately, in spite of the breathtaking speed at which Congress managed to push the proposals though both chambers and onto the president's desk for signing, the swath of indicators we saw this week tell us that the ship has probably already sailed," she said.
"By our estimations we are probably at least a couple of months into the downturn," she said.
TYPHOON: The storm’s path indicates a high possibility of Krathon making landfall in Pingtung County, depending on when the storm turns north, the CWA said Typhoon Krathon is strengthening and is more likely to make landfall in Taiwan, the Central Weather Administration (CWA) said in a forecast released yesterday afternoon. As of 2pm yesterday, the CWA’s updated sea warning for Krathon showed that the storm was about 430km southeast of Oluanpi (鵝鑾鼻), Taiwan’s southernmost point. It was moving in west-northwest at 9kph, with maximum sustained winds of 119kph and gusts of up to 155kph, CWA data showed. Krathon is expected to move further west before turning north tomorrow, CWA forecaster Wu Wan-hua (伍婉華) said. The CWA’s latest forecast and other countries’ projections of the storm’s path indicate a higher
SLOW-MOVING STORM: The typhoon has started moving north, but at a very slow pace, adding uncertainty to the extent of its impact on the nation Work and classes have been canceled across the nation today because of Typhoon Krathon, with residents in the south advised to brace for winds that could reach force 17 on the Beaufort scale as the Central Weather Administration (CWA) forecast that the storm would make landfall there. Force 17 wind with speeds of 56.1 to 61.2 meters per second, the highest number on the Beaufort scale, rarely occur and could cause serious damage. Krathon could be the second typhoon to land in southwestern Taiwan, following typhoon Elsie in 1996, CWA records showed. As of 8pm yesterday, the typhoon’s center was 180km
TYPHOON DAY: Taitung, Pingtung, Tainan, Chiayi, Hualien and Kaohsiung canceled work and classes today. The storm is to start moving north this afternoon The outer rim of Typhoon Krathon made landfall in Taitung County and the Hengchun Peninsula (恆春半島) at about noon yesterday, the Central Weather Administration (CWA) said, adding that the eye of the storm was expected to hit land tomorrow. The CWA at 2:30pm yesterday issued a land alert for Krathon after issuing a sea alert on Sunday. It also expanded the scope of the sea alert to include waters north of Taiwan Strait, in addition to its south, from the Bashi Channel to the Pratas Islands (Dongsha Islands, 東沙群島). As of 6pm yesterday, the typhoon’s center was 160km south of
STILL DANGEROUS: The typhoon was expected to weaken, but it would still maintain its structure, with high winds and heavy rain, the weather agency said One person had died amid heavy winds and rain brought by Typhoon Krathon, while 70 were injured and two people were unaccounted for, the Central Emergency Operation Center said yesterday, while work and classes have been canceled nationwide today for the second day. The Hualien County Fire Department said that a man in his 70s had fallen to his death at about 11am on Tuesday while trimming a tree at his home in Shoufeng Township (壽豐). Meanwhile, the Yunlin County Fire Department received a report of a person falling into the sea at about 1pm on Tuesday, but had to suspend search-and-rescue
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