Could the U.S. follow the U.K. into another recession?

Marketplace Contributor Apr 26, 2012

Jeremy Hobson: Now let’s get to the Federal Reserve which said yesterday it will not take any additional steps to stimulate growth right now. It’s sticking to its plans to keep interest rates low for the next couple years. The central bank upgraded its forecast for the U.S. economy this year but downgraded the forecast for 2013 and 2014.

Diane Swonk is Chief Economist with Mesirow Financial. She’s with us live as always from Chicago to discuss. Good morning.

Diane Swonk: Good morning.

Hobson: So Diane, a lot of messages there from the Fed. What do you make of all of it?

Swonk: Well we are seeing the Fed coalesce a little bit closer together. Some of the outliers came in a bit and you know, that’s good news in that they’re agreeing a little bit more on the economy, what we hear as a little bit more. They upgraded their forecast for 2012, and then all downgraded 2013 and 2014. So they’re all agreeing a little bit more. Maybe that’s some hope that somebody can agree in Washington.

Hobson: OK, let me just focus on that upgrade of the forecast for 2012 for a second, because as the Fed was telling us that, we also learned that the U.K. economy just slipped back into recession.

Swonk: Exactly. And this is something that the Fed is actually worried about — the tail risks. Although the forecast is upgraded, the U.K.’s been persuing aggressive austerity measures like many economies in Europe and now had to face the consequences of those measures. And there is some argument for a balance — how much do we take austerity in the hit upfront and lose revenues from that, like we saw in the Netherlands this week as well. Or do we stimulate a little bit and focus on growth. And in Europe, you’ve got the major arbitrators of the IMF and the ECB; not so much in the U.K. And we don’t have anyone arbitrating that debate here in the U.S.

Hobson: Diane Swonk, chief economist with Mesirow Financial. Thanks as always.

Swonk: Thank you.

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