I think someone should at least give them a simple hint that this economy is already in a recession and that avoiding one at this very moment is just impossible. GDP is going to drop significantly over the next 6-18 months. A drop below 2% is most likely coming for the second haflf of 2008. ECONOMY Fed vows 'substantive' action to avoid recession Economists expect an interest rate cut of at least half a point by the end of the month with more reductions likely to follow January 11, 2008 WASHINGTON -- Wall Street and Ben Bernanke finally seem to agree on something: The U.S. economy is in trouble and much lower interest rates are probably needed to fix it. Offering his starkest assessment yet of the economy, the U.S. Federal Reserve Board chief promised "substantive additional action" yesterday to keep the country from slipping into recession. The Fed is "prepared to act in a decisive and timely manner ... to counter any adverse dynamics that might threaten economic or financial stability," said Mr. Bernanke, who has been criticized for not moving fast enough to deal with the stumbling economy. The remarks, delivered in a speech in Washington, set off a lively debate among analysts about what Mr. Bernanke meant by "substantive." But many economists, along with traders in federal funds futures, now expect another half-a-percentage-point interest rate cut on or before the central's bank's next meeting Jan. 29-30, and more rate relief in the coming months. "This speech [is a] a tacit endorsement of the market's expectations of a more aggressive move on January 30th," said Bear Stearns economist John Ryding. And that, apparently, was what investors wanted to hear. Stocks in Canada and the U.S. shot up in the hours after Mr. Bernanke speech. The Dow Jones industrial average climbed nearly 1 per cent to 12,853.09, while the TSX rose 62.71 points to 13,642.65. Mr. Bernanke, who took over from Alan Greenspan nearly two years ago, has come under growing criticism on Wall Street for falling "behind the curve" as the economy has slowed and the credit crunch has worsened. Several prominent Wall Street economists complained in a New York Times story yesterday that Mr. Bernanke hasn't been aggressive enough in dealing with the faltering economy or strong-arming Fed colleagues to take decisive action. On Dec. 6, the Fed lowered its benchmark interest by a quarter percentage point to 4.25 per cent - a full percentage point lower than in the summer. Some economists expect the Fed to continue cutting until the rate falls as low as 2 or 2.5 per cent by the end of 2008. "The tone of his speech makes it clear that growth risks trump inflation right now," said economist Ryan Sweet of Moody's Economy.com. From Mr. Bernanke, gone was language that suggests a soft landing is possible. Instead, he made it clear that all is not right with the economy. He said that while the Fed isn't yet predicting a recession, the early readings on economic activity in 2008 have gotten worse and the downside risks are "more pronounced." He predicted that consumer spending, which accounts for more than two-thirds of economic activity, would take a hit from higher oil prices, lower stock prices and falling home values. And he warned that financial markets are fragile and "funding markets remain impaired." And, like many economists, Mr. Bernanke is particularly worried by the December jobs figures, which showed near-stagnant job growth and a spike in the jobless rate to 5 per cent. "It would be a mistake to read too much into any one report. However, should the labour market deteriorate, the risks to consumer spending would rise," he said. Asked about a possible recession, Mr. Bernanke pointed out that the Fed is not yet ready to predict a shrinking economy. Interestingly, he added that recessions are notoriously hard to predict because of the volatility and frequent revision to key economy data, and often aren't confirmed until months after the fact. Before joining the Fed, Mr. Bernanke sat on the board of the National Bureau of Economic Research, the official arbiter of recessions.