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Fed fears severe downturn

Latest update : 2008-04-09

Minutes from the latest meeting of the Federal Reserve have revealed that members fear a ‘severe and prolonged’ downturn in the US economy during the first half of 2008, warranting use of the word 'recession'.

Downturn, slowing, shrinking, contraction…many people have been reluctant to use the ‘R-word’ until now, but these minutes from the Fed’s latest policy meeting would seem to make it official: the US economy is in recession.

A recession is usually defined as two consecutive quarters of negative growth in GDP. In other words, 6 months when the total value of goods and services produced by the country declines. This is precisely what a majority of the bank’s policymakers feel is in store for the economy this year.

Most of the economic indicators coming out of the country at present appear to back this up. 80 thousand jobs were shed in March, and measures of consumer and business confidence are at their lowest levels for years.

Above all, millions of people are at risk of losing their homes, as the housing market continues to tank. Add to this the threat of inflation, abetted by the high cost of oil and the low value of the dollar, and the Fed’s pessimism makes sense.

There may be light at the end of the tunnel, however (though not everyone agrees that we are even in the tunnel yet), as the Federal Reserve predicts a slight improvement in the US economy in the latter half of this year.


Date created : 2008-04-09