(January 9) – “A Federal Reserve official tried to quell speculation that the long-expanding economy is screeching toward a recession, even as private-sector economists warned of the current downturn’s severity,” writes Nicholas Kulish in today’s Wall Street Journal.

“In a speech before the Atlanta Rotary Club, Federal Reserve Bank of Atlanta President Jack Guynn became the first high-ranking official of the central bank to publicly comment on its surprise cut in interest rates last week. “The U.S. economy remains the envy of the world, and everything that brought us here remains,” said Mr. Guynn, in a generally upbeat presentation, citing simultaneous low inflation and low unemployment.”

“But talk of a contracting national economy continued to spread. Richard Berner, chief U.S. economist at Morgan Stanley Dean Witter, rattled markets Monday with the release of a report entitled ‘Recession Arrives’. “

“The report argues that the Fed’s most recent rate cut was too late to prevent a contraction. ‘The key questions now are how deep and how long will the recession be, who it will claim as its major victims, what it will take to promote the eventual recovery and what will be the shape of the other side of the valley,’ Mr. Berner wrote in a widely distributed report.”

“In Atlanta, Mr. Guynn seemed to warn against strong — and potentially premature — reactions to rapidly slowing growth in consumer demand and a bedraggled manufacturing sector. ‘Slower GDP growth is not the same thing as no growth; a slightly higher unemployment rate is not the same thing as high unemployment,’ said Mr. Guynn. Americans, he added, ‘should not allow inflated expectations to distort their thinking,’ suggesting that such an outcome ‘could be just as damaging as rising prices.’ “

“In a separate appearance Monday, Dallas Fed President Robert McTeer also spoke about the present state of the economy. ‘We are going to be very alert, looking for any weakening,’ said Mr. McTeer. Despite the cautionary note, Mr. McTeer suggested that GDP would show continued growth for the fourth quarter.”