Belatedly, the Bad-News Bearer
It's (semi) official: We're in a recession.
The Federal Reserve chairman didn't come right out and say it in his appearance before the Joint Economic Committee yesterday, but in his carefully hedged, deliberate mumbo jumbo, Ben Bernanke delivered a message as stark as bread lines and shantytowns.
"It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008, and could even contract slightly," he testified.
It didn't take an economics PhD to crack Bernanke's code: Two quarters of economic contraction is the common definition of a recession. "Am I correct in understanding that you now believe a recession is possible?" asked the committee chairman, Sen. Chuck Schumer (D-N.Y.).
"A recession is possible," Bernanke affirmed, setting the news wires abuzz.
BERNANKE WARNS OF POSSIBLE RECESSION.
DOLLAR SINKS WITH US FED CHIEF SUGGESTING RECESSION IS POSSIBLE.
BERNANKE RECESSION COMMENT SENDS SHARES LOWER.
If anything, Bernanke is a bit late to the recession party. His predecessor, Alan Greenspan, wrote recently that the current financial crisis will be "the most wrenching since the end of the Second World War." And Martin Feldstein, whose National Bureau of Economic Research is the official arbiter of recessions, forecast a "substantially more severe" downturn than usual. "The situation is bad, it's getting worse, and the risks are that the situation could be very bad," he said last month.
But the Fed chairman's willingness to invoke the R-word carries particular weight because of his consistent habit of understating the nation's economic problems. Just six weeks ago, he was still forecasting "sluggish growth" for the first part of this year. Last July, he forecast that 2008 would be a time of "strengthening" above an already "moderate pace."
His view of the subprime lending debacle has been equally cheerful. A year ago, he testified before Congress that the subprime mortgage problem "seems likely to be contained." With characteristic optimism, he forecast: "We don't see it as being a broad financial concern."
With that history of prognostication, Bernanke's warning yesterday of a "possible" recession meant it might be a good time for people to hide their valuables and get a shotgun. "He came as close as he possibly could, given his responsibility to be a bit of a cheerleader," Schumer judged after the recession session.