US near recession, Fed policy-maker warns

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Friday , March 28, 2008 at 0845 hrs The US economy could be slipping into recession and the Federal Reserve must cushion the pain, a top Fed policy-maker said on Thursday in remarks supporting hopes for more interest rate cuts.

Dennis Lockhart, president of the Atlanta Fed, was one of six US central bankers speaking on Thursday after government data confirmed anemic growth in the fourth quarter, which analysts say has since slowed further.

"It's clear the economy is in a slowdown that resembles past periods that were the leading edge of a recession," Lockhart told a Rotary Club meeting in Chattanooga, Tennessee. "I believe that an important policy objective at this juncture is to ensure that this slowdown is short and shallow."

The Fed last week slashed benchmark lending rates by a hefty three-quarters of a percentage point to a three-year low of 2.25 percent, in addition to the other measures it has introduced to keep money flowing in markets. Investors think it will trim rates by another 50 basis points at its next scheduled policy meeting, on April 29-30.

Meanwhile, Cleveland Fed Bank President Sandra Pianalto said a mortgage crisis that is pulling down housing prices is casting a pall over consumer spending and is "very detrimental to our economy."

Much of her address in Dayton, Ohio, dealt with the Fed's effort to put new policies in place to try to mitigate the damage from the ongoing credit crisis to a vulnerable economy.

Pianalto is a voting member of US central bank's policy-setting Federal Open Market committee this year, but Lockhart is not. The Fed's regional bank presidents get voting slots on a rotating basis.

Gary Stern, president of the Minneapolis Fed and a voting member this year, also voiced concern over slow growth.

"People should be under no illusions that even if policy is reasonably effective and reasonably timely, that given the disruptions we've had with the financial sector and implications for the outlook ... some of this (weakness) is now baked in the cake," he told a seminar in London.

Stern and Pianalto both voted for the Fed's last rate cut. But two other regional Fed presidents -- Dallas Fed chief Richard Fisher and Philadelphia's Charles Plosser -- voted against such a large move. Plosser speaks Friday in Cape Town, South Africa.

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