U.S. Recession Likely in 2008
Morgan Stanley’s chief Asia economist, Andy Xie, predicts that the U.S. has a good chance of entering a recession in 2008 due to inflation pressure leading to higher interest rates.
Sept. 15 (Bloomberg) — The U.S. economy may fall into recession in 2008 as “inflation pressure” drives up borrowing costs next year, Morgan Stanley’s chief Asia economist Andy Xie forecast.
Xie said the U.S. Federal Reserve policy makers have so far persuaded investors that they will contain inflation, helping keep yields on 10-year notes below 5 percent. U.S. consumer prices will increase more than expected, Xie predicts, prompting a bond market selloff.
“We’re headed for stagflation because the bond market believes the Fed,” Xie said in an interview today on the sidelines of the International Monetary Fund annual meeting in Singapore. “Recession will happen when the bond market sees through the Fed and sells off. People will have nowhere to borrow money anymore.”
Wow, I thought I was pessimistic on the economy.
Morgan Stanley’s New York-based chief economist, Stephen Roach, said that while he didn’t share Xie’s view, the “odds of a U.S.-led global recession are rising in the 2007-08 period and cannot be taken lightly.” David Rosenberg, chief North America economist at Merrill Lynch & Co., forecasts a 45 percent risk of a U.S. recession next year.
This seems like the more reasonable approach to take. The data so far points to a weakening economy, and predicting a recession is always difficult to say the least.