On Recession Watching And Fed Watchers


The Fed surprised most in the markets with its timing, if not its action, when it cut interest rates by 75 basis points on Tuesday. As the snow fell early this week here, the market selloff snowballed. The next three days of coverage will be dominated by questions about the strength of the US economy, the path to recession and the chances of any decoupling. Our coverage from Davos will touch on all of these questions, and the broader theme of collaboration.

PricewatershouseCoopers has for many years produced a survey of CEO optimism at the start of every Davos week. This year’s tells a story of two worlds, with emerging market CEOs still relatively optimistic and US and Western European CEOs feeling gloomy about the year ahead. But of course this is probably already old news. The survey was carried out over a three-month period, starting in the autumn and ending before the most recent market selloff. Sam DiPiazza Jr., the CEO of PwC, did his best to deflect questions about what the survey might have said had it been conducted this week but refused to call a recession in the US.

Nouriel Roubini, chairman of RG Monitor and a Professor of Economics at NYU’s Stern School of Business, was predicting he would be quite popular at this year’s event. Last year here he forecast that the US housing market would be weak, a credit crisis would ensue and the US economy was in for a hard landing. He claims that in all the optimism of last year’s event, he was not in high demand.

Today he told me that whether the Fed cuts rates again (and some economists have -emailed me to say we should expect another 50-basis-point cut at the next meeting Jan. 29-30) is not really the issue. He says the Fed waited too long to give us too little and a US recession is now underway. And in case you thought that in Europe and Asia we can hide from this, Roubini is perhaps not a great believer in the decoupling theory.

The real meat of this event kicks off tomorrow and the theme of this year’s coverage is collaboration and the best economic and political minds will need to put their heads together here in Davos if they want to stave off a US recession and global slowdown.