Economic Analysts Suggests Rates Cut; ECONOMICS
The OECD yesterday reduced its forecast for US economic growth and recommended a rapid cut in interest rates to limit the fallout from a housing and mortgage market slump that has sparked global financial market turmoil.
In an update to its economic forecasts for major industrial nations, the Paris-based Organisation for Economic Co-operation and Development it was impossible at present to evaluate the potential wider damage from the direct impact of a sharp downturn in US housing and a defaults crisis in the sub-prime mortgage market there.
"Downside risks have become more ominous," the OECD's chief economist, Jean-Philippe Cotis, said.
The OECD was not for now predicting US recession but was not discounting the possibility either, he added.
He recommended that the US Federal Reserve reduce its key interest rate by a quarter of a percentage point this month to shore up growth, but without going so far as to give foolhardy investors the idea that public authorities would always be there to bail them out by cutting the cost of credit.
He presented updated GDP forecasts for several countries and said US growth was expected to be 1.9 per cent this year rather than 2.1 per cent forecast previously, and that growth in third and fourth quarters would be much weaker than a surprisingly strong showing reported for the April-June period.
"Recent developments have revealed serious imperfections in the functioning of US housing markets and, more broadly, in credit markets worldwide," Mr Cotis said. …