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IMF Warns of Slowing U.S. Economy Amid Subprime Crisis

AP
Wednesday, 12 Sep 2007 | 7:09 AM ET

The U.S. 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 U.S. 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 U.S. inflation appeared to be rising more slowly than previously thought. "Overall, the interest rate environment in the U.S. is clearly softening."

Contact Europe: Economy

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