Is a recession in the US economy in 2008 possible? Yes. Is it probable? No. Before the FOMC rate decision on Tuesday, a poll by WSJ.com put the chance of a recession at approximately 35 percent. Yesterday’s coordinated announcement by central banks around the world did little to alter those expectations, but taking a look at today’s US data, it is hard to believe that a recession is probable. The US consumer, who is the backbone of the economy, continues to spend voraciously. According to the retail sales report, consumer spending doubled expectations in the month of November thanks to exceptionally strong demand for clothing and electronics. We are also finally seeing the impact of energy prices on inflation as producer prices grow by the fastest pace in 34 years. These reports are the main reason why the Fed did not cut rates by more than 25bp on Tuesday. Their hands are tied when it comes to monetary policy which is why they have been forced to come up with more creative ways to prevent the credit squeeze from worsening such as creating a Term Auction Facility. It can be argued that today’s data is horribly backwards looking and the US economy is simply catching up with the rest of the world when it comes to inflation, but the strength of the US consumer cannot be overlooked. Analysts are notorious for being overly pessimistic as they have been about the Euro’s impact on the Eurozone’s economy. We had a record breaking Black Friday and Cyber Monday which should have been a good indication that retail sales in November would be strong. Consumer prices and industrial production are due for release tomorrow and we expect consumer prices to follow producer prices higher.