'The Fed Has No Reason Left Not to Step In'

Thursday's round of economic signposts were all pointing down. Retail sales for March fell 0.2 percent. First-time unemployment claims for last week were way up. The PPI — inflation at the wholesale level — actually declined. And, perhaps critically for the Fed, Thursday's University of Michigan consumer confidence numbers also went sharply south to 87.8 after an uptick last month to 91 that suddenly looks like false hope.

The markets surprised everybody and held up rather well, hovering around the break-even point at noon — but there's no escaping it: This is bad news, and Alan Greenspan knows it.

TIME.com: Is this the tipping point for the Fed?

BB: These may be the key numbers. All of them — retail sales, wholesale prices and especially consumer sentiment and unemployment — seem to portray an economy that is still very weak, with inflation actually declining. First-time unemployment claims hit 392,000, the highest level in five years. Generally, 425,000 to 450,000 is a level that economists generally associate with a recession. And it seems we're headed in that direction.

The PPI posted a surprising decline, due mostly to the fact that the cost of energy dropped in March by a record 4 percent. What this means is that not only is the economy very weak, there's no inflationary pressures at all. And without inflationary worries, the Fed really has no justification for not stepping in with a rate cut.

What's this mean for the markets?

BB: Well, there's a positive to this if they think the Fed's going to step in. But this is likely going to throw some cold water on the little bit of strength we've seen in stock prices the last week or so. With retail sales down and consumer sentiment down, the outlook for corporate profits isn't going to be good, and we've really reached a point where bad economic news like this is bad news for everybody, Main Street and Wall Street alike.

A while back you told us that the worst was over. What happened?

BB: Well, it looks like what looked like a bottoming out of consumer confidence in March may have been a plateau. With announced layoffs reaching record levels in March — at the pace of some 7,000 per business day — and with the markets still in trouble, we may be finding out that consumer confidence has yet to stop falling.

And that means that the last leg holding up this economy — consumer spending, which accounts for two thirds of U.S. economic activity — may be ready to fall. These numbers, along with the bad reports from retailers like Sears and Wal-Mart, indicate to me that consumers are nervous about the economy, and they're staying home. And that spells recession.

Is it a done deal at this point?

BB: Right now, I think we're bouncing around at the bottom of the cycle, where the economy is basically standing still and could either start to slowly pull out of it or take a further dip into a contractionary phase.

So is the Fed going to move before the May 15 meeting?

BB: Based on today's numbers, I think so. These are the numbers Greenspan is really watching for — unemployment and consumer sentiment. I think we'll see the Fed step in some time near the end of this month.