Goldman Sachs became the latest Wall Street firm to predict that the U.S. economy will drop into recession this year, saying the Federal Reserve will have to cut interest rates to 2.5 percent by the third quarter as a result.

The economic outlook became more uncertain Thursday after many of the nation's big retailers reported weaker than expected holiday sales, the result of consumers cutting their spending due to higher energy prices and the ongoing housing slump.
Many merchants failed to meet their already lowered sales projections during December, and their performance during this critical sales period led some stores to reduce earnings outlooks for the fourth quarter. The weak results crossed all retail categories.

Federal Reserve Chairman Ben Bernanke pledged Thursday to slash interest rates as needed to prevent housing and credit problems from plunging the country into a recession.
The Fed chief made clear the central bank was prepared to act aggressively to rescue a weakening economy. "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," he said.

Wall Street stocks rallied on Thursday after Ben Bernanke said the Federal Reserve was prepared to keep cutting interest rates to help shore up the the US economy.
The Fed chairman's comments reversed earlier losses caused by some disappointing retail sales figures.

The probability of the U.S. economy sliding into a recession is now over 50 percent, but it is not a sure thing, National Bureau of Economic Research President Martin Feldstein said on Thursday.
"A recession in my judgment is more likely than not, but it's not a sure thing," Feldstein told a forum hosted by the Hamilton Project, an economic research group headed by former Treasury Secretary Robert Rubin.

It's important to the voters.

If 2007 was the year of Iraq in the presidential campaign, 2008 is now shaping up as the year of the economy.
In the first days of the New Year, the stock market has registered one of its worst year-opening performances ever. The first jobs report of 2008 showed continued softening in labor markets and unemployment jumped to 5 percent, a two-year high. The mortgage crisis has not abated and continues to spook economists and local elected officials.

Republicans, Democrats and independents in New Hampshire all agree: the economy isn't working for them. The exit poll of voters in the Dem primary, 44% of whom were independents, spoke loud and clear.

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