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During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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Double dip recession unlikely


JAN HOPKINS: Our next guest says that a slow recovery is under way and he says a double-dip recession is unlikely at this point. Economist Lakshman Achuthan joins us now.

Lakshman, today, we had a record number -- we hear that a record number of people in the last week filed mortgage applications because these interest rates are so low. Are these consumers really smart to lock in now or are rates going to continue to stay low or go even lower?

LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INSTITUTE: Well, they're smart to lock in now. These are very low rates. If they get it right at the bottom, nobody can really do that. But I think what it's telling us is that they're confident enough to make such a big commitment. And that speaks volumes when we're having this debate about how strong is this recovery, are we about to fall into another double-dip. The debate is all over the place, but the consumer is very consistently on track. They're not going anywhere right now.

HOPKINS: And taking advantage of the deals in autos and in homes.

ACHUTHAN: Yes, autos, we're going to have another wonderful month of sales, home sales here. And with these home sales, when you take out your mortgage applications or you refinance and you give a consumer a pile of cash, even if they're carrying some heavy debt loads, they're financing of those debt loads is very, very low because of these low interest rates. And a consumer with cash usually spends it. And so that disconnect where the consumers are more confident about the future than businesses will have to be reconciled. And if the consumer keeps doing what they're doing, I think the businesses get dragged back to spending. I mean, they're already, it is clear, they're not firing.

HOPKINS: It is interesting. One of the fed governors today said that we're in for a bumpy recovery. But it isn't the responsibility of the Federal Reserve to smooth out all the bumps. Do you agree with that, that every time we get nervous, it isn't necessarily time for the Federal Reserve to lower rates?

ACHUTHAN: Well, the Fed has -- this is a really big boat. And so, there is going to be a few waves here and there and you can't adjust for each one of them. I think the fallacy that we got used to was this new economy, that things were perfect, and that the Fed could cure all ills. And that's just not the case.

In a big market economy like this, the Fed is one of the tools that helps stabilize the economy. But market economies have contractions and that's not going to go away. And that is, I think, the big message that people need to remember and learn, as we go forward and we think about what we should price everything.

HOPKINS: And your view is that the economy is basically righting itself. The boat is turning in the right direction.

ACHUTHAN: It is. And it is never pretty. And we tend to kind of persist on whatever happened recently. So, we just lived through a recession, and that gives you the doom and gloom outlook. The reality is we're somewhere in the middle. And if you watch the objective indicators, that's what they've been telling you, a slow and sustained recovery and everybody is coming to that view now.

HOPKINS: May not feel like much of a recovery, but it is one.

ACHUTHAN: We would love it to be faster, but it isn't right now.

HOPKINS: Lakshman Achuthan, thanks.

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