Economic vetting, wall street setting.

• Author: Heffes, Ellen M.
• Position: ECONOMY

Economics is said to be the "dismal science," so two economists describing the current economic climate to FEI's New York City Chapter--in the fabled boardroom of the New York Stock Exchange--must've felt right at home.

Indeed, David A. Wyss, chief economist for Standard & Poor's, told the audience at the Jan. 16 event that as recently as late last year, his recession call was that "something had to go wrong to see a recession." In a seemingly 180-degree turn, his message now is: "Something has to go right to avoid a recession."

He said the usual culprit, inflation, is still the economy's number one risk, but on the "back burner" for the short term as we deal with the eminent danger of recession; we've "got to survive the short term to worry about the long term." Even Federal Reserve Chairman Ben Bernanke, he noted, had abandoned his prior position claiming inflation was "public enemy number one," and was making more aggressive rate cuts in an effort to "be there for you."

On stage with Wyss was New York-based Ellen Beeson Zentner, U.S. macro economist for the Bank of Tokyo-Mitsubishi UFJ Ltd., and moderator Thomas R. Keene, CFA and editor-at-large for Bloomberg News. Zentner said that according to her analysis, we've "actually moved to 50-50 leaning towards a recession." She described her expectation of pending Federal Reserve policy as one that should "abandon its inflation watch and take care of the economy"--in essence, "deal with the patient [and] worry about why he or she is sick later."

Asked if there is a liquidity problem, Wyss said it's more a "risk perception problem," in that "everybody is scared stiff to do anything that involves risk." Everybody is worried about the lack of transparency, he said, and "nobody knows if it's safe to be in the water." He expects normalization will return in the next few months, adding that "normal is not where we were last summer, when the spreads got down to levels that were insanely low" and there was no reward for taking a risk; now it's overshot in the other direction. "It'll settle down eventually."

On the credit markets, Zentner said, "Normalization in mortgage markets is a long, painful...