Next Friday's release of the March Employment report is likely to heighten market fears of a deepening recession. Expect a further decline in overall nonfarm payrolls, especially in manufacturing payrolls, and a rise in the unemployment rate to at least 4.9% and more likely 5.0%, reversing February's aberrant decline to 4.8%. That dismal employment report, capping other signs of economic contraction next week, will reinforce prospects for a decrease in first quarter GDP to be reported at the end of April, marking the onset of recession. Tuesday, look for an additional decline in the March Institute of Supply Management manufacturing index (from the 5-year low of 48.3 reported for February). Also Tuesday, February construction spending will likely extend the January plunge, the steepest in fourteen years. In response to such bleak reports, there is likely to be additional weakness in the equity market and a continuation of low Treasury yields.
The markets will grow increasingly confident of a further Fed easing in April to 1.75%, or at least 2.0%, from the current 2.25%. Despite the Fed's agressive easing to date and other Fed and US Treasury measures to add liquidity to the financial system, the problems persist.
Financial system losses, capital charge-offs and write-downs continue to mount. Estimates of losses thus far recognized by bank and non-bank lenders and investors are now in the area of $500 billion. But, the risk is that there are more losses still to be recognized and more charge-offs of capital to come. Even if that were not the case, the massive contraction of bank and non-bank capital already realized needs to be replenished by the financial system and the loss of lender confidence restored before the pronounced credit squeeze is reversed. Because bank and non-bank lending is leveraged on a capital base, the capital contraction forces a credit deleveraging that can be a 10-times multiple of the capital losses. That adds up to a monumental credit contraction problem.
The forced sale of Bear Stearns was not the end of the problem. That measure was necessary to protect Bear Stearns counter-parties from triggering a massive cascading credit crisis. Though the situation may appear less dire for the moment, appearances can be decieving.
Underlying problems persist, including unpricable illiquid sub-prime mortgage-related assets, much of it hidden off the balance sheet. Home prices continue to decline, while mortgage interest rate resets, delinquencies, defaults and foreclosures continue on the upswing. A construction and housing related credit bust is far more worrisome as an economic depressant than merely a decline in the equity market. The IMF concluded on the basis of a survey of the business cycles of 21 industrial countries that a recession precipitated by a housing contraction is twice as deep as one reflecting principally an equity market decline. This recession is likely to be reinforced in its contraction by a further decline not only in housing, commercial real estate and equities, but also a global recession, a 20% or larger decline in most basic commodity prices (reversing speculative buying), a contraction in consumer spending and more cautious business capital spending.
This recession is unfolding in slow motion. But, do not be decieved by its gradual nature into assuming that the worst is over, that it will be mild or its duration brief.
Philip Braverman, President
Braverman Economic Consulting
One Hewitt Square #249
East Northport, New York 11731
Saturday, March 29, 2008
Friday, March 21, 2008
Credit market worries push short-term Treasury yields to 50-year lows
Despite a bear-market relief rally in equities this past week, there was a continuing flight to safety and liquidity in the credit market. Both markets are unlikey to sustain the extremes of this week's trends. Given that the recession has not yet inflicted the bulk of its coming pain on consumer and business spending and consequently on earnings, the equity market uptrend is likely to prove temporary.
The Fed is virtually certain to be forced by the recession and credit crunch to ease further. That and ebbing inflation fears as the global recession takes hold will pull Treasury bond yields lower. But, the Thursday lows in Treasury 3-month bill yields, which were partly due to special factors, are likely to prove temporary.
There were a number forces at work behind the equity market rally this past week. Both Lehman Brothers and Goldman Sachs reported first quarter earnings that, while down more than 50% from a year earlier, were far better than feared. The market was reassured that these two institutions were not following Bear Stearns' path of failure and forced sale. That precipitated a relief rally in these two stocks that carried over into other financials and the general equity market. The Federal Reserve's agressive easing also played an important role. The three-quarter percentage point cut in the Federal funds rate to 2.25%, the implicit promise of more easing to come as needed, other forms of Fed credit support(including direct lending to nonbanks)and credit injections by the Europen Central Bank encouraged the equity market in the false belief that the worst was over. Indeed, many observers indicated that the equity market had put in its bottom and was now primed for a sustained rise. However, as the week ended there were signs of more problems ahead that will soon jeopardize the equity market rally.
Ominous developments included a prononced selloff in commodities. It was blamed on fears that a deepening recession would reduce global demands. While true enough eventually, it is currently premature for that to be the sole or even primary reason for the plunge in commodities. Rather, the commodity sellof is an indication that the deep losses in largely unmarketable subprime mortgage-related debt or other contracts is forcing financially stressed holders to liquidate assets that still have value. This is an example of a variation on Gresham's law that bad assets drive out good. It suggests more financial troubles have yet to come to light.
As if to underscore that point, CIT group, the largest US independent commercial finance lender, reported Thursday that its normal sources of funding had dried up in response to the credit crunch. As a result,the firm was drawing down its entire $7.3 billion back-up credit line. CIT's problems are far from unique. They also portend financing trouble for small and medium-sized firms heavily dependent on credit, especially on nonbank sources. But, banks have their own troubles, and their lending is also likely to continue contrained, despite Fed efforts to inject liquidity. Late in the week, Credit Suisse Group dashed the belief that banks are out of trouble with its announcemant that losses in March will produce a loss for the first quarter. Though this stemmed in part from inadequate write-downs of mortgage-related assets, there are other problems brewing. Regional builders, for example, with strained financial resources, are increasingly delinquent or in default on their loans, placing pressure in turn on their lenders, typically regional banks. It was problems such as these that led Fed Chairman Bernanke in recent testimony to warn of the likely step-up in failures of small banks.
On Thursday, short-term Treasury yields plunged to 50-year lows in response to the credit market squeeze, the Fed's easing, the sharp drop in commodity prices and especially uncertainties over possible adverse devlopments over a long holiday weekend. The bond equivalent yield on the 3-month Treasury bill ended the week at 0.514%(after falling as low as 0.3%),down from an already low 1.17% the week before. The 3-month Treasury bill yield is often seen as an indication of where the market thinks the funds rate is ultimately headed. I look for a return to a 1.0% Federal funds rate late this year or next. However, Thursday's low US bill yield level seems less a market indication that the Federal funds rate is headed for Japanese style levels than it is a temporary near panic drive for safety and an effort to preserve liquidity. Though it may seem hard to believe, that objective in the great depression of the 1930's was a major factor that led Treasury bill yields to actually fall below zero. The current situation is not that dire, though admittedly worse than widely recognized. The two-year Treasury note yield was 1.55%, while the 10-year reached 3.33%,down from 3.51% the previous Friday. But yields on lesser credits, even high grade debt, rose further last week as the quality yield spread between credit grades widened further, with the prospect of still more to come. This is a clear indication that the willingness to lend and invest has disapated despite Fed efforts to amelirate the credit crunch.
The credit crisis is deepening, and with it the risks to the economy. Though the yields on 10-year and longer maturity Treasuries are already near their previous cyclical lows and the lowest levels since the Eisenhower Presidency, expect still lower Treasury bond yields once the recession is in full swing and inflation concerns at least temporarily disappear. Only after the recession appears to have run its course and the danger of default lessens will the widening quality yield spreads be cyclically reversed.
The Fed is virtually certain to be forced by the recession and credit crunch to ease further. That and ebbing inflation fears as the global recession takes hold will pull Treasury bond yields lower. But, the Thursday lows in Treasury 3-month bill yields, which were partly due to special factors, are likely to prove temporary.
There were a number forces at work behind the equity market rally this past week. Both Lehman Brothers and Goldman Sachs reported first quarter earnings that, while down more than 50% from a year earlier, were far better than feared. The market was reassured that these two institutions were not following Bear Stearns' path of failure and forced sale. That precipitated a relief rally in these two stocks that carried over into other financials and the general equity market. The Federal Reserve's agressive easing also played an important role. The three-quarter percentage point cut in the Federal funds rate to 2.25%, the implicit promise of more easing to come as needed, other forms of Fed credit support(including direct lending to nonbanks)and credit injections by the Europen Central Bank encouraged the equity market in the false belief that the worst was over. Indeed, many observers indicated that the equity market had put in its bottom and was now primed for a sustained rise. However, as the week ended there were signs of more problems ahead that will soon jeopardize the equity market rally.
Ominous developments included a prononced selloff in commodities. It was blamed on fears that a deepening recession would reduce global demands. While true enough eventually, it is currently premature for that to be the sole or even primary reason for the plunge in commodities. Rather, the commodity sellof is an indication that the deep losses in largely unmarketable subprime mortgage-related debt or other contracts is forcing financially stressed holders to liquidate assets that still have value. This is an example of a variation on Gresham's law that bad assets drive out good. It suggests more financial troubles have yet to come to light.
As if to underscore that point, CIT group, the largest US independent commercial finance lender, reported Thursday that its normal sources of funding had dried up in response to the credit crunch. As a result,the firm was drawing down its entire $7.3 billion back-up credit line. CIT's problems are far from unique. They also portend financing trouble for small and medium-sized firms heavily dependent on credit, especially on nonbank sources. But, banks have their own troubles, and their lending is also likely to continue contrained, despite Fed efforts to inject liquidity. Late in the week, Credit Suisse Group dashed the belief that banks are out of trouble with its announcemant that losses in March will produce a loss for the first quarter. Though this stemmed in part from inadequate write-downs of mortgage-related assets, there are other problems brewing. Regional builders, for example, with strained financial resources, are increasingly delinquent or in default on their loans, placing pressure in turn on their lenders, typically regional banks. It was problems such as these that led Fed Chairman Bernanke in recent testimony to warn of the likely step-up in failures of small banks.
On Thursday, short-term Treasury yields plunged to 50-year lows in response to the credit market squeeze, the Fed's easing, the sharp drop in commodity prices and especially uncertainties over possible adverse devlopments over a long holiday weekend. The bond equivalent yield on the 3-month Treasury bill ended the week at 0.514%(after falling as low as 0.3%),down from an already low 1.17% the week before. The 3-month Treasury bill yield is often seen as an indication of where the market thinks the funds rate is ultimately headed. I look for a return to a 1.0% Federal funds rate late this year or next. However, Thursday's low US bill yield level seems less a market indication that the Federal funds rate is headed for Japanese style levels than it is a temporary near panic drive for safety and an effort to preserve liquidity. Though it may seem hard to believe, that objective in the great depression of the 1930's was a major factor that led Treasury bill yields to actually fall below zero. The current situation is not that dire, though admittedly worse than widely recognized. The two-year Treasury note yield was 1.55%, while the 10-year reached 3.33%,down from 3.51% the previous Friday. But yields on lesser credits, even high grade debt, rose further last week as the quality yield spread between credit grades widened further, with the prospect of still more to come. This is a clear indication that the willingness to lend and invest has disapated despite Fed efforts to amelirate the credit crunch.
The credit crisis is deepening, and with it the risks to the economy. Though the yields on 10-year and longer maturity Treasuries are already near their previous cyclical lows and the lowest levels since the Eisenhower Presidency, expect still lower Treasury bond yields once the recession is in full swing and inflation concerns at least temporarily disappear. Only after the recession appears to have run its course and the danger of default lessens will the widening quality yield spreads be cyclically reversed.
Sunday, March 16, 2008
The credit crisis is worsening, deepening the recession
The Bear Stearns liquidity debacle, and the Fed's temporary bailout response, is just the latest episode in the ongoing credit crisis saga. The credit markets are in for more unwelcome surprises as the financial excesses of recent years further deflate both a broad array of financial institutions and the economy. Expect more financial institution asset write-downs and capital losses. These losses are already approching $300 billion. That will squeeze credit availability further, despite additional agressive Fed easing. The consequence of the credit crunch will be a deeper and prolonged recession, which is just barely beginning. Indeed, the now developing recession is likely to rank among the worst of the post-World War 11 period.
The Fed is doing the right thing to provide a 28-day line of credit to Bear Stearns through JP Morgan Chase. The abrupt failure of a major Wall Street firm due to inadequate liquidity would further erode shaky market confidence in the stability of the financial system. This temporary reprieve buys time for Bear Stearns to find a more permanent solution, including negotiating a sale to potential buyers, reportedly including JP Morgan Chase.
There is no doubt that Bear Stearns was imprudent in its financing of the sub-prime fiasco as well as in other questionable activities. But its culpability is far from unique. And therein lies the challange for the Fed in attempting to soften the blow to the economy in the collapse of a financial house of cards that was created, to be blunt, out of sheer lunacy. Warren Buffet aptly described the financial innovation that built these crumbling assets as "weapons of maas destruction". And so they have become.
The Fed in its meeting next week is likely to cut the funds rate target from its current 3.0% level to at least 2.5%, and perhaps to as low as 2.0%. The report that consumer prices were unchanged in February, both overall and excluding food and energy, gives the Fed lattitude to ease more agressively next week. That increases the chances of a cut to 2.25% or 2.0%. But even a 2.0% funds rate will not be suffient to stem the credit crisis. The Fed will, in due course, ease still further, probably in April.
The Fed will be forced by dire financial and economic consequences to eventually return to a 1.0% funds rate despite the potentially adverse impact of Fed easing on the dollar and inflation fears. There are a number of reasons for this obvious Fed choice. The credit crisis and recession are far greater near-term dangers than inflation. Furthermore the recession will eventually supress inflation. The February unchanged CPI performance is undoubtedly a near-term aberration, not an early sign of that eventual development. Admittedly, Fed easing and for a time an accompaning declining dollar will be raising import prices. But that inflationary process will only persist until the US and global recession gains sufficient force to reduce global demand and price pressures. Indeed, inflation is a lagging response and is likely to remain subdued for a considerable length of time even after the US economy is in a cyclical recovery. Moreover, the dollar will eventually stabilize and strengthen as the recession turns global, particularly as the US economy bottoms out and prospects for a US recovery improve.
One key to the end of the recession is for a bottoming out of housing prices. Given the sizable inventory of unsold homes, the still rising foreclosure rate, more mortgage resets to come and reduced mortgage credit availability, home prices seem far from their bottom. Indeed, there could be as much as a 25% nationwide peak to trough decline in home prices, or roughly twice the drop thus far. Similarly, the declines in equity prices also have much further to go, despite the potential for at times even explosive bear market rallies. Equity market forecasts are notoriously inaccurate. Nevertheless, considering the projected severity of the recession, equity indices may also have thus far only fallen half way to their ultimate lows. Philip Braverman
The Fed is doing the right thing to provide a 28-day line of credit to Bear Stearns through JP Morgan Chase. The abrupt failure of a major Wall Street firm due to inadequate liquidity would further erode shaky market confidence in the stability of the financial system. This temporary reprieve buys time for Bear Stearns to find a more permanent solution, including negotiating a sale to potential buyers, reportedly including JP Morgan Chase.
There is no doubt that Bear Stearns was imprudent in its financing of the sub-prime fiasco as well as in other questionable activities. But its culpability is far from unique. And therein lies the challange for the Fed in attempting to soften the blow to the economy in the collapse of a financial house of cards that was created, to be blunt, out of sheer lunacy. Warren Buffet aptly described the financial innovation that built these crumbling assets as "weapons of maas destruction". And so they have become.
The Fed in its meeting next week is likely to cut the funds rate target from its current 3.0% level to at least 2.5%, and perhaps to as low as 2.0%. The report that consumer prices were unchanged in February, both overall and excluding food and energy, gives the Fed lattitude to ease more agressively next week. That increases the chances of a cut to 2.25% or 2.0%. But even a 2.0% funds rate will not be suffient to stem the credit crisis. The Fed will, in due course, ease still further, probably in April.
The Fed will be forced by dire financial and economic consequences to eventually return to a 1.0% funds rate despite the potentially adverse impact of Fed easing on the dollar and inflation fears. There are a number of reasons for this obvious Fed choice. The credit crisis and recession are far greater near-term dangers than inflation. Furthermore the recession will eventually supress inflation. The February unchanged CPI performance is undoubtedly a near-term aberration, not an early sign of that eventual development. Admittedly, Fed easing and for a time an accompaning declining dollar will be raising import prices. But that inflationary process will only persist until the US and global recession gains sufficient force to reduce global demand and price pressures. Indeed, inflation is a lagging response and is likely to remain subdued for a considerable length of time even after the US economy is in a cyclical recovery. Moreover, the dollar will eventually stabilize and strengthen as the recession turns global, particularly as the US economy bottoms out and prospects for a US recovery improve.
One key to the end of the recession is for a bottoming out of housing prices. Given the sizable inventory of unsold homes, the still rising foreclosure rate, more mortgage resets to come and reduced mortgage credit availability, home prices seem far from their bottom. Indeed, there could be as much as a 25% nationwide peak to trough decline in home prices, or roughly twice the drop thus far. Similarly, the declines in equity prices also have much further to go, despite the potential for at times even explosive bear market rallies. Equity market forecasts are notoriously inaccurate. Nevertheless, considering the projected severity of the recession, equity indices may also have thus far only fallen half way to their ultimate lows. Philip Braverman
Friday, March 7, 2008
The recession has arrived
Any lingering doubts over the onset of a recession were quelled by the February employment report. The second consecutive month of declines in seasonally adjusted nonfarm payrolls was persuasive evidence. February nonfarm payrolls fell 63,000, after a revised 22,000 January decline. Moreover, the declines were widespread and would have been larger if not for a rise in Government employment.
A slight dip in the unemployment report to 4.8% from 4.9% was no solace. Indeed, the reason for this seeming improvement is actually ominous. In the separate houshold survey there was a 450,000 plunge in the labor force that more than offset a sizable 255,000 drop in that survey's count of employment. That suggests a large increase in the number of unemployed workers who were so discouraged at the absence of job prospects that they stopped actively looking for work. As a result they were no longer counted in the labor force. If the labor force in February had remained at the January level, instead of declining, the February unemployment rate would have been 5.1%. Expect the unemployment rate to climb over coming months to between 5.5% and 6.0%.
Though average hourly and weekly earnings both rose 0.3% in February, that will not translate into sustained healthy consumer spending. Other sources of consumer wealth and income are drying up. Consumer confidence is plunging. And most persusive, consumer borrowing will be increasingly constrained.
The aggregate hours worked component of the February employment report confirms a likely drop in first quarter production and real GDP. Though aggregate hours worked was unchanged from January, the January decline remains in place, pointing to the recession beginning in the current quarter, or possiblly late in the fourth quarter last year.
Separate statistics on the duration of unemployment also point to the onset of recession. In January it took the average unemployed worker 8.8 weeks to find work, up from a cyclical low of 7.5 weeks as 2006 came to an end. Such a cyclical rise almost invariably accompanies a recession.
The Fed made it clear this week that it will continue easing to deal with the weakening economy as well as the financial crisis, all with close consultion with other central banks. However, the clear signs of the onset of recession and hopes for coordinated easing have already begun to lessen the credit market's inflation concerns, despite the continued buoyancy of key commodity prices and parallel weakening dollar. That slight moderation in inflation expectations was evident in the improvement in Treasury bond and note prices. Though employment is a lagging indicator, inflation has a much longer lag before it responds to the weaker global economic demands that still lie ahead. And when the US is at the onset of recovery and the rest of world is still in recession, the US dollar is likely to strengthen, at least for a while. Given these long lags, the cyclical lows in inflation and US Treasury bond yields may not ocurr until next year. Philip Braverman
s
A slight dip in the unemployment report to 4.8% from 4.9% was no solace. Indeed, the reason for this seeming improvement is actually ominous. In the separate houshold survey there was a 450,000 plunge in the labor force that more than offset a sizable 255,000 drop in that survey's count of employment. That suggests a large increase in the number of unemployed workers who were so discouraged at the absence of job prospects that they stopped actively looking for work. As a result they were no longer counted in the labor force. If the labor force in February had remained at the January level, instead of declining, the February unemployment rate would have been 5.1%. Expect the unemployment rate to climb over coming months to between 5.5% and 6.0%.
Though average hourly and weekly earnings both rose 0.3% in February, that will not translate into sustained healthy consumer spending. Other sources of consumer wealth and income are drying up. Consumer confidence is plunging. And most persusive, consumer borrowing will be increasingly constrained.
The aggregate hours worked component of the February employment report confirms a likely drop in first quarter production and real GDP. Though aggregate hours worked was unchanged from January, the January decline remains in place, pointing to the recession beginning in the current quarter, or possiblly late in the fourth quarter last year.
Separate statistics on the duration of unemployment also point to the onset of recession. In January it took the average unemployed worker 8.8 weeks to find work, up from a cyclical low of 7.5 weeks as 2006 came to an end. Such a cyclical rise almost invariably accompanies a recession.
The Fed made it clear this week that it will continue easing to deal with the weakening economy as well as the financial crisis, all with close consultion with other central banks. However, the clear signs of the onset of recession and hopes for coordinated easing have already begun to lessen the credit market's inflation concerns, despite the continued buoyancy of key commodity prices and parallel weakening dollar. That slight moderation in inflation expectations was evident in the improvement in Treasury bond and note prices. Though employment is a lagging indicator, inflation has a much longer lag before it responds to the weaker global economic demands that still lie ahead. And when the US is at the onset of recovery and the rest of world is still in recession, the US dollar is likely to strengthen, at least for a while. Given these long lags, the cyclical lows in inflation and US Treasury bond yields may not ocurr until next year. Philip Braverman
s
Sunday, March 2, 2008
Portents of a consumer-led recession
Signs of a deepening recession continue to mount. The consumer, the backbone of the US economy, is increasingly feeling the pain and constraint of the downturn. Persausive evidence suggests consumer spending, accounting for some seven-tenths of GDP, is likely to soon decline significantly. Indeed, that process may well have already started in earnest. The Conference Board's index of consumer confidence plunged precipitously to 75.0 in February, from 87.3 in January and from 111.2 in February a year ago. That drop is certainly consistent with consumers worsening problems with credit, housing prices, energy costs and the labor market. The rise in intial claims for unemployment benefits to a near recessionary 373,000 level in the week of February 23 suggests that next Friday's February unemployment report will further reinforce the developing recession picture for this lagging economic indicator. Though consumer spending and retail store sales both edged higher in January, even that meager bouyancy will not persist. Even making allowance for the strength of consumer internet and credit card purchases, consumer spending will decline in coming quarterly reports. It is not just the coming rise in unemployment and consequent cut in income that will be the culprit. Rather, it will be the caution in consumer spending mandated by fear of far more layoffs to come, weakening employment prospects and the reduced availability of excessivly easy credit. Forshadowing more trouble ahead for durable goods orders, production and employment, January sales for autos and light trucks were down, both for domestic units and imports.
Adding to the evidence of a consumer led recession is a new economic report, which indicates consumer spendable funds are already in retreat. One of the problems in assessing the current state of the economy is the dependence of analysts on relatively old data that has the further defect of being based on outmoded concepts. To correct for these defects, a new index termed the Consumer Spendables indicator was created by TrimTabs Investment Research. This series attempts to measure all sources of spendable consumer funds, including mortgage refinancing, real estate sales, capital gains on equities, self employment and parnership income, as well as more traditional income sources such as wages and salaries, pensions, dividends and interest. This series is down 0.6% thus far in the current quarter ending in March, from the same quarter last year. This is a significant break from the strong increases in recent years that fueled an unsustainable consumer spending binge. The cutback in profligate housing finance, the downtrend in equity prices and the uptrend in unemployment will all serve to reinforce and extend the decline in consumer income and spending.
It should come as no surprise, given this darkening economic landscape, that Fed Chairman Bernanke in testimony this past week strongly indicated the liklihood of further near-term Fed easing. The Fed is virtually certain to cut the funds rate from its current 3.0% in its March 18 meeting, most likely to 2.5%, and reduce the funds rate further, to at least 2.25%, in April, to 2.0% by year end, and to return to the 1.0% level next year. The recession will quash inflation concerns sufficiently to bring Treasury long-term yields lower, probably to at least retest their cyclical lows.
Adding to the evidence of a consumer led recession is a new economic report, which indicates consumer spendable funds are already in retreat. One of the problems in assessing the current state of the economy is the dependence of analysts on relatively old data that has the further defect of being based on outmoded concepts. To correct for these defects, a new index termed the Consumer Spendables indicator was created by TrimTabs Investment Research. This series attempts to measure all sources of spendable consumer funds, including mortgage refinancing, real estate sales, capital gains on equities, self employment and parnership income, as well as more traditional income sources such as wages and salaries, pensions, dividends and interest. This series is down 0.6% thus far in the current quarter ending in March, from the same quarter last year. This is a significant break from the strong increases in recent years that fueled an unsustainable consumer spending binge. The cutback in profligate housing finance, the downtrend in equity prices and the uptrend in unemployment will all serve to reinforce and extend the decline in consumer income and spending.
It should come as no surprise, given this darkening economic landscape, that Fed Chairman Bernanke in testimony this past week strongly indicated the liklihood of further near-term Fed easing. The Fed is virtually certain to cut the funds rate from its current 3.0% in its March 18 meeting, most likely to 2.5%, and reduce the funds rate further, to at least 2.25%, in April, to 2.0% by year end, and to return to the 1.0% level next year. The recession will quash inflation concerns sufficiently to bring Treasury long-term yields lower, probably to at least retest their cyclical lows.
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