The R word will return again (recession)
The credit crunch climate has cooled off as commodities are bringing up consumer confidence as they fall. This drop in prices is favorable to the average joe who is feeling a bit of a slowing economy. Luckily a drop in commodities across the board should free up some discretionary spending money and boost numbers this quarter. Looking out, the R word (recession) is nearing yet again.
It seems as though the market has cooled off on the usage of recession to describe the current economic environment. But looking back at what Bernanke has told us, Recession will spill over into the fall. The market is looking for the Federal Reserve to raise interest rates in the fall, probably around September as Bernanke has indicated. Combine rising rates with the limited lending at the Fed window in recent weeks and it looks like the credit crunch will go to cash crunch.
Though the government and the Federal Reserve are acting quick to throw money at the economy, it seems that every bit of it will be leaving through depressed real estate prices and dropping markets. The billions of dollars that were given to banks to fight the credit crunch are only making up for what was previously lost, net I’d say we’re only up a few billion dollars over what the housing market and stock markets have been able to wipe away.
Raising rates will cut down on the money supply and hopefully further drop the price of commodities. It is likely that a rate hike would bring a more favorable exchange rate to US consumers while hurting major exporters. If the Fed keeps it tight like we’d expect and Congress stays out of the Freddie and Fannie boondoggle, then we’ll likely fall into recession. The economic stimulus package is slowly making its way overseas and coming back in the form of oil and cheap plastic goods.
With any luck, higher rates should bring some investment into the United States as the currency is cheap and higher rates should attract money from other developed areas. But if economics work their way, this fall will mark a time of economic recession.
