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Sub-prime, debt still top US economic threat: poll

Inflation jitters a distant 3rd; terrorism fears down the list

(WASHINGTON) The combined punch of sub-prime mortgage defaults and heavy debt remains the biggest risk to the health of the US economy, a panel of business economists said yesterday.

‘NABE members are increasingly concerned over the short-term risks associated with sub-prime mortgages and other forms of indebtedness, while they continue to cast a wary eye on inflation,’ said Ellen Hughes-Cromwick, president of the National Association for Business Economists.

The conclusion was based on a survey of 259 members conducted between Feb 1 and 15 and updates a poll conducted in August.

Of the members polled for the NABE semi-annual Economic Policy Survey, 52 per cent said that the combined threat of sub-prime mortgage defaults and heavy debt was their No 1 concern, up from 32 per cent in August. Inflation was a distant third at 10 per cent in March, up from 6 per cent, the survey showed.

Only 9 per cent of the members polled said terrorism was now their top concern, compared with 20 per cent in August. ‘Fewer respondents support monetary and fiscal policies being implemented to address the credit situation, with more than one-third saying current monetary policy is too stimulative,’ said Ms Hughes-Cromwick.

Just 48 per cent judged monetary policy to be ‘about right’, a drop from 72 per cent in August and 81 per cent in March 2007.

Two-thirds of those surveyed expect short-term interest rates to decline over the next six months, with about half of those respondents expecting a cut between 25 basis points and 50 basis points, NABE said.

The Federal Reserve has aggressively cut the benchmark federal funds interest rate, bringing it down to 3 per cent from 5.25 per cent in mid-September to bolster the economy against the housing downturn and credit squeeze.

The most frequently cited concerns about lower interest rates are the threat of inflation and the sense that lower rates might ‘bail out investors who should have known better’, NABE said.

Source: Reuters (Business Times 4 Mar 08)

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