Treasury yields suggest U.S. economy should rebound before election

"We're still looking at, most likely, two quarters of negative GDP," Wang said. "And I would caution that the yield curve predictor is not perfect. The correlation is not perfect and it is not guaranteed. Something could occur to deflect or delay the recovery. And we still have a lot of unknowns regarding subprime mortgage defaults and write-offs, and credit market issues. I just mention the above to give investors a proper perspective concerning the economy's overall health. We still have many problems to address before we're on a sound economic footing."

Fed rate cuts, fiscal stimulus help

Nevertheless, Wang said the U.S. Federal Reserve's interest rate cuts and the $168 billion Congressionally-approved fiscal stimulus package that President Bush will sign are two major steps in the right direction. The Fed's ongoing term-auction facility is a third, he said.

"The financial markets are still subject to jolts from write-offs and losses, but there are now mechanisms in place to maintain liquidity, which is essential to restore economic health, and the fiscal stimulus will create some consumer and business demand, another positive," Wang said. "With a moderation in oil prices we should see an economy well into recovering before the new president raises his right hand to take the oath of office next year."