Will Economic Softening Deteriorate into a Recession?

The Fed and other major central banks have panicked, abandoning their 2% inflation targets and slashing their policy rates in view of sluggish economics, weakening labor markets, the East Coast dock strike, and growing Middle East problems. Interest rate cuts have fueled equities but probably come too late to forestall further economic weakness.

A US recession remains a distinct possibility. If it unfolds, a normal 30% drop in average equity prices would be likely. With declining inflation and their safe-haven appeal, Treasury bonds would benefit, as would the dollar.