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Economists Say Chances of US Recession Increasing


Global markets Monday declined amid continuing concern about the health of the US economy grappling with problems in the housing sector. VOA's Barry Wood has more.

Asian markets on average lost over two percent in the past two trading sessions while European exchanges closed Monday at a three-week low. Wall Street closed higher after trading in the loss territory for most of Monday's session.

Jean-Claude Trichet, head of the European Central Bank, told reporters in Switzerland Monday the markets may be overreacting to economic news.

"When markets are embarking on a significant correction, there are also episodes of what I would call hectic behavior in certain markets, episodes of over-shooting in terms of the level of the correction and also in terms of the level of volatility," said Jean-Claude Trichet.

Business economists meeting in San Francisco lowered their forecast for economic growth due to the problems in the home loan and housing markets. Ellen Hughes, chief economist at Ford Motor Company, is the incoming president of the National Association for Business Economics. She says corporate economists see increased risk of recession.

"Most of them said that risk [of recession] is about 25 to 35 percent, so a one in four to one in three odds [of recession]," said Ellen Hughes.

As evidence mounts that the housing problem is slowing economic growth, analysts are increasingly sure that the Federal Reserve will announce a cut in short-term interest rates when it meets next week in Washington. Harold Lavender is an independent commodities trader in Chicago. He is especially worried about home repossessions.

"We're really facing a crisis in terms of foreclosures and other sub-prime [lending] issues," pointed out Harold Lavender. "And I think those political questions are really a big factor in terms of what is going on right now."

The U.S. overnight lending rate is currently 5.25 percent. Experts say a one quarter point reduction is almost certain and could be as large as 0.5 percent.

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