Is the US heading for a recession? Whether US economy is going into recession has been a debatable issue among economists for quite some time now. As seen recently in the global foreign exchange and stock markets, it is a major concern of all global investors. There is a Chinese saying that often rings true when measuring the economy: “If America sneezes, the world will get a flu”. Indeed, America, we have a huge impact on global macro economy. Undeniably, US economy is indeed slowing down after a few good years. It can be confirmed by Fed’s decisions to cut interest rates. Many analysts think that further rate drops may be possible in the future, to avert the growing fears of recession. Will this rate cut will successful help to minimize the economic weakness snowballs? Has the Fed has done too much and too quickly that might imposed another inflationary reaction? Are they making the right decision to upturn the economy situation or just encouraging more risk taking behaviour in Wall Street? Housing woes, subprime crisis, inflation, and weak dollars are all symptoms of a foundering US economy. Profit plunges and further outflows of foreign investment are definitely possible. One major concern is still the housing market slump. Fed officials admit that recent rate cut might probably has the modest impact on the main problems in the housing market, such as the inventory glut, falling home prices, a difficult mortgage market and rising foreclosures. One of the major indicators of recession is the all time culprit – Inflation. While oil prices are hitting its record high in decades, cutting rates seemed to be an unwise decision. Continue rising prices in energy and commodity market will increase the cost of all products and create a chain effect which will eventually lead to increase of essential consumer product prices. Adding the fact of weak dollar does not help on controlling inflation issue either. It contributes to higher costs of living for US residents. US housing markets contribute to the household wealth and support borrowing to finance spending. However, due to the housing crisis and previous low interest rate environment, many US consumers realized they are heavily in debt and are facing credit default risk. This has lowered the spending power and caused of retail sales decrease. Weak dollars make it harder for US firms and investor to expand into foreign markets requiring more investment capital for overseas ventures. Many facts above have supported the trend that US economy is facing a hard time in the coming future. Therefore, investors should remain bearish and be extra cautious while making decision to commit into any US related investment to avoid being “burnt”.
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