1083-report | Eurobank
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• In contrast to the Consensus view of a short-lived and shallow contraction in the US, we expect a deeper consumer-led recession. Our GDP probit model suggests that the US is already in a recession in Q2 08 with a probability of more than 90%.
• We estimate the output loss of the current recession to exceed $100bn. Hence, in terms of GDP loss, the current recession is likely to be twice as severe as the 2001 recession.
• With rising inflationary pressures, there is not much room for the Fed to lower interest rates further as the economy continues to weaken. However, the deterioration of the state of the real economy and the tightening of credit conditions may prompt the Fed to cut rates once more later this year by another 25-50bps.