U.S. RECESSION AND THE GLOBAL ECONOMY

For two days now half of the world's biggest stock indexes fell into a bearish trend as concerns about a U.S. recession dragged down banking and retail shares across Asia, Europe and Latin America. But today the Hong Kong stock indexex just rebounded.The Fed lowered its benchmark interest rate in an emergency move for the first time since 2001, after these stock markets tumbled from Hong Kong to London and the U.S. the US economy showed increasing signs that it's headed into a recession.

The Central Bank had to cut the target overnight rate to 3.5 basis point from 4.25 percent, FOMC in it's statement in Washington made this known. There was no sheduled gathering till next week, this is the biggest single reduction since the Fed began using rate as a vital instrument of monetary policy around 1990. Traders had anticipated 75 basis points of rate cuts this month, according to futures prices on the Chicago Board of Trade. The FOMC vote was 8-1, with St. Louis Fed President William Poole preferring to wait until the regularly scheduled meeting. Fed Governor Frederic Mishkin was absent and not voting. Fed officials met by video conference at about 6 p.m. yesterday, spokeswoman Michelle Smith said. Mishkin was traveling and unable to participate, she said. The voting members were the same as in 2007 because the presidents don't rotate in until the first regular meeting, Smith said. The Fed has also disclosed that "Broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and household," while FOMC took the initiative "in view of a weaking of the economic outlook and increasing downside risks to growth.'' the Fed said in a statement in Washington.

Fed chairman Ben Bernanke is aiming to shore up confidence with this move. One analyst said the Fed was "obviously panicked" by the threat of recession. "Unfortunately they have no power to reverse what in my opinion is the worst post-war recession," said Michael Metz, chief investment strategist at Oppenheimer in New York. ``The bottom line was that financial conditions were tightening sharply'' and affecting the economic outlook, said former Fed economist Brian Sack, who is now with Macroeconomic Advisers LLC in Washington. ``The view so far has been that they're somewhat behind the curve and needed to adopt a somewhat more
aggressive approach.'' The Fed Board of Governors, in a related move, lowered the so-called discount rate on direct loans to commercial banks by a 0.75 percentage point to 4 percent.

Bernanke told legislators at the House Budget Committee that banks were trying to protect asset quality and funding, and tightening credit conditions for the rest of the economy as a result. ``Banks have also evidently become more restrictive in their lending to firms and households,'' he said. The sharp downturn in the US economy has centred on the slump in the American housing market over the past year. Against a backdrop of higher US mortgage rates, home loan defaults and repossessions hit record levels last year, specifically in the sub-prime sector. This industry specialises in higher risk loans to people on low incomes or those with poor credit histories. As the sub-prime mortgage sector hit crisis point, it triggered record losses at some of America's largest banks. It also caused the global credit squeeze, as much of this sub-prime debt was repackaged into wider debt offerings that were bought by banks and other investors around the world. As a result, global banks are now much less willing to lend to each other, or to homes and businesses, until the full extent of the sub-prime exposure is known.

The Bank of Canada, in a scheduled meeting, lowered its main interest rate by a quarter point today to 4 percent and signaled it will act again to shield Canada from the U.S. slowdown. The Bank of England said it has no plans to change the date of its next rate decision. The bank's policy makers are due to begin a two-day meeting in London on Feb. 7.

Although the Davos Meeting starts officially tomorrow, there is presumeable going to be alot of debate about a Slow down Vs Recession and whether a global economic slow down is around the corner or not would be an issue for discussion when the meeting starts in ernest. Policy makers set aside concerns about inflation to lower borrowing costs for the fourth time since September after the unemployment rate hit a two-year high and stocks slumped. Chairman Ben S. Bernanke shifted the Fed's stance to a more- aggressive approach in remarks this month citing a need for ``decisive and timely'' action. Asia rebounds on U.S. Fed rate cut.

The dollar fell and Treasury securities rallied after the announcement. Stocks slumped as some investors questioned whether the Fed would be able to avert a recession, and then recouped more than half the losses. The Standard & Poor's 500 Index fell 1.5 percent to 1,304.96 at 10:30 a.m. in New York, after dropping as much as 3.8 percent earlier.