Cleveland Fed Says the US is Already in a Recession

During a lunchtime forum at The City Club of Cleveland, Federal Reserve Bank of Cleveland President Sandra Pianalto said that the United States is already in a recession, even though an official call hasn't yet been made.

“At the moment, the signs point to a recession beyond just a ‘garden variety’ downturn. The length and severity of the recession will depend on how quickly credit markets return to normal," she said.

Pianalto compared the current economic situation in the markets to that of 1907, when the San Francisco earthquake hit and the Dow Jones Industrial Average fell 25%. However she did indicate that today, there is a notable difference in the way our country responds to such financial uncertainty, with the help of the Federal Reserve Bank.

According to Pianalto, the Federal Reserve has already taken a number of steps to free up credit, including lending $500 billion to banks, which is up from $300 million one year ago. She also said that the bank has used its emergency powers to help entities including AIG and Bear Stearns, who she sayd are "critically important to the functioning of credit markets."

Questioned about the planned acquisition of National City Corp. by PNC Financial Services Group, Pianalto said that she could not comment on specific institutions. She did say, however, that regulators are working to make changes to ensure the markets continue to function.

She also said that she hopes the Fed will take time to "step back" and look at the economy in broader terms after it finally rebounds, and avoids being too "hasty" in creating new policies.

“Indeed, these are historic and unprecedented times,” she said. “The Federal Reserve has faced its share of challenges since its founding, but we are in the midst of one of our biggest challenges ever," said Pianalto.