Recession fears predicated by a still-cool US economy may lead the US Federal Reserve to cut interest rates this week - the sixth time this year, analysts say.
"As the economy grinds to a standstill, the Fed is likely to maintain its aggressive easing tack," and ease rates by 50 basis points at the June 26th and 27th meeting of the Federal Open Market Committee," said New York investment bankers SalomonSmithBarney in a weekly analysis.The cut, which other analysts predict at just one-quarter per cent, would reduce a key short-term interest rate to either 3.75 or 3.5 per cent.But the cuts - five already since its January 3rd level of 6.5 per cent - concern some Fed officials, who see the softening of US fiscal policy in response to a sharp economic slowdown since late last year as a potential inflation risk. The Fed has also lowered its largely symbolic discount rate from 5.5 to 3.5 per cent.SalomonSmithBarney said for the Fed, the real question is not whether a softer monetary policy will be sufficient to kick-start the economy. Rather, the Fed seeks to maintain consumer and investor morale to avoid a full-fledged plunge into recession.Analysts' estimates put US growth at just 0.4 percent for the second quarter, compared to a 1.3-per cent expansion in the January-March period.It usually takes six to nine months for a reduction in the cost of money to be felt throughout the economy. AFP