Economists and market players (and Federal Reserve officials) are all debating the same question: what kind of landing is ahead? There is no doubt that economic activity has softened. The Fed's job was done last year - that is, they had wanted to tighten credit conditions in order to reduce consumer demand and ward off evil inflationary pressures. Indeed, consumer demand has essentially come down - given all the anecdotal evidence of soggy December retail sales and the actual plunge in motor vehicle sales. Manufacturing activity is contracting. Several indicators - from the NAPM survey to employment to factory orders - confirm this dragging sector. But will it be enough to take the whole economy down with it?

In order to insure that the landing will not be a crash, the Fed decided to take bold action this week by reducing the federal funds rate target before its scheduled FOMC meeting. The Fed has not lowered interest rates by 50 basis points since the 1990-91 recession. Even during the height of the 1998 global financial crisis, it only moved in 25 basis point increments. Clearly, Greenspan felt that a bold move was necessary to avert a recession. However, it really is too soon to tell whether the Fed acted in time. If retail sales and industrial production come in weaker than expected, it is likely that the Fed will reduce the fed funds rate target an additional 25 basis points at the end of the month with the FOMC meeting. That seems to be the consensus among economists at this time. Many economists are predicting that the funds rate target, now at 6 percent, could be reduced to as low as 4.75 percent within the next six months. Stay tuned!