New year and same old problems

By Ros Krasny

SAN FRANCISCO (Reuters) - The new year won't bring cheer to the world's major economies, which face the aftershocks of an historic banking and credit crisis and a deep recession in the United States and much of the globe.

The U.S. Federal Reserve's breakthrough move to set its benchmark lending rate at zero to 0.25 percent could become a model for other central banks. The Bank of England is expected to lower its key rate on Thursday.

Highlights of the week's data calendar include U.S. December car sales on Monday and non-farm payrolls on Friday. European markets could grapple with a dose of deflation when consumer price data is revealed.

Still, the resolve to put a smiley face on the new calendar could be helped by money markets, which have at least made it through the looking glass to 2009 without a fresh crisis erupting, and change on the way in Washington.

"The recovery of the money market is most apparent in the downtrend in LIBOR (the London Interbank Offered Rate), which is collapsing and is set to collapse further," said Tony Crescenzi, chief bond market strategist at Miller Tabak.

PLUMBING THE DEPTHS?

Even with potential improvements in market mechanisms, many economists expect the first quarter of 2009 in the United States to be at least as bleak as the final three months of 2008 appeared to be. They see no fast end to the upward spiral in job losses.

The U.S. recession, dated to December 2007, might end technically by mid-year with a return to positive growth. The risk is that recovery will be tepid. For that reason, Goldman Sachs now forecasts that the fed funds rate could stay near zero until late 2010.