The weak housing market could topple the US into a full-blown recession and the Federal Reserve should slash interest rates aggressively, one of the country's most prominent economists warned on Saturday.
"Lower interest rates now would help," Martin Feldstein, president of the influential National Bureau of Economic Research, told an annual retreat of central bankers and academics, including a number of senior Fed policy-makers. Feldstein, who warned of a "multiplier effect" from declining home prices and lower consumer spending, said a cut of as much as 100 basis points might be warranted.
The symposium, hosted by the Federal Reserve Bank of Kansas City in the Grand Teton mountains, is examining the implications of a meltdown in the US sub-prime mortgage market for borrowers with risky credit. Fed Chairman Ben Bernanke also attended the symposium but left before Feldstein’s remarks.