Russell 2000 dropping

The Russell 2000 (NYSE: IWM) and the other major U.S. indices have fallen deep into negative territory as economic concerns take center stage. At 2:46 p.m. ET, the small-cap index was down 9.55 points, or 1.35%, to 695.31. The Dow Jones Industrial Average (INDU) had lost 27.56 points, or 0.22%, to 12,561.51.

The U.S. economy will experience a recession this year and the Federal Reserve will respond with aggressive rate cuts, according to Goldman Sachs Group Inc. (NYSE: GS). The New York-based investment bank wrote in a note to its clients that it expects gross domestic product to contract in the second and third quarters, prompting the Fed to lower the federal funds rate to 2.5%.

The federal funds rate, the rate at which commercial banks make overnight loans to each other, was lowered on Dec. 11 to 4.25% from 4.50%. On Jan. 29, the Fed begins a two-day meeting, with most economists currently expecting that it will not move to cut interest rates before then.

However, William Poole, president of the Federal Reserve Bank of St. Louis, does not see a recession.

“Will housing sector problems push the economy into recession?” Poole asked the Financial Planning Association of Missouri and Southern Illinois in a speech earlier today. “It is too early to tell right now.”

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