Chinese School - Official warns of slowing US economy

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WORLD / America

Official warns of slowing US economy

(AP)
Updated: 2007-09-12 19:50

PARIS - The US economy will slow next year amid continued trouble in the
housing market, likely leading to lower interest rates, a senior
International Monetary Fund official said Wednesday.

Simon Johnson, director of the IMF's Research department, said fallout
from the subprime credit crisis hasn't yet been resolved - and the IMF
doesn't understand why tight financial markets continue.

"The problem hasn't been resolved," despite efforts from major central
banks to boost liquidity in the financial markets, said Simon Johnson,
director of the IMF's research department. "This makes it hard to assess
the outlook."

Johnson predicted that the impact of the lending crisis in the subprime
mortgage market in the United States will be limited outside the Americas.

"The effect ... on the real economy is limited because European markets
managed to be relatively insulated from the shock," he said.

The IMF is "very comfortable" with moves by the US Federal Reserve and
the European Central Bank to make funds available for the tightening
credit markets.

Financial markets are expecting the Fed to ease rates further, Johnson
said.

"This is a situation where interest rates are likely to fall," he said,
adding that US inflation appeared to be rising more slowly than
previously thought. "Overall, the interest rate environment in the US is
clearly softening."

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