Don’t Worry. Be Happy. Worst Economic News May Be Yet to Come

by Tula Connell, Jan 11, 2008

The financial markets were supposed to be happy. In a speech yesterday, Federal Reserve Chairman Ben Bernanke indicated that worries over a U.S. recession outweighed inflation fears, so the Federal Reserve will lower interest rates at its next meeting, Jan. 29–30. Lower interest rates translate to more cash flow in the economy.

After the rockiest economic start to a new year in memory—skyrocketing oil prices, plummeting job numbers, the ongoing mortgage crisis—Bernanke’s unambiguous comments seemed like just the tonic the nation needed.

Maybe not. Never mind that the Dow Jones has dropped by more than 250 points by midafternoon today. Reflecting on Bernanke’s remarks, Bill Wheaton, an economics professor at Massachusetts Institute of Technology (MIT), told NPR yesterday that the most notable part of Bernanke’s speech was the speech itself. According to Wheaton, Federal Reserve chiefs give such public statements as a way to get ahead of worse news—news based on data not yet released that the Fed knows is coming.

Uh, oh.

Wheaton, who’s also director of Research for MIT’s Center for Real Estate, said the center estimates housing prices would continue to tank through 2010. Earlier this week, the National Association of Realtors said pending home sales decreased 2.6 percent to 87.6, following a 3.7 percent gain in October, “signaling further deterioration in housing,” according to Bloomberg.  

The daily data dump of worsening economic news finally has the Republican presidential candidates scrambling to re-write their playbooks to focus on jobs, wages and outsourcing. But as we noted yesterday, it’s best to look closely at their records.

While pundits and policymakers bandy about the R word, here are some recent posts from those who talk about, not around, a U.S. recession. First on this list is the AFL-CIO’s call for a moratorium on foreclosures on subprime mortgages to prevent America’s home owners from disaster and the country from economic free fall. Read the details here.

• Economic Policy Institute economist Jared Bernstein has some proposals to jump-start the economy over at TPM Cafe.
• Writer Barbara Ehrenreich says members of the public don’t care what the pundits say—they know we’re in a recession.
• Credit card issuers fret the nation’s housing woes are spreading their way, notes Bonddad.
• Stirling Newberry at The Agonist has no doubt about it, as his blog title indicates: The Coming Double Dip Recession.
• And let’s not forget that All-American gender gap that, whether we’re in or out of  recession, like the Energizer Bunny, it just keeps going.

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