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US Economy Needs Interest Rate of Minus 5%: Report

An ideal interest rate to help the US economy to cope with the recession would be a negative 5 percent, the Financial Times reported on its Web site, quoting an internal Federal Reserve analysis.

It said the analysis was based on a so-called Taylor-rule approach, which estimates an appropriate interest rate based on unemployment and inflation.

Fed policy makers meet for two days starting Tuesday, but are widely expected to hold fire and assess the effects of the measures already taken to boost the economy.

"We see little reason to expect major policy changes," Goldman Sachs economists wrote in a note to clients, quoted by Reuters.

In March, the US central bank announced plans to inject an additional $1.1 trillion into the economy, buying mortgage debt and Treasurys.

As rates cannot be cut below zero, the Fed's internal research suggests it should maintain unconventional policies that provide stimulus roughly equivalent to an interest rate of minus 5 percent, the Financial Times wrote.

Fed staff suggested the central bank may need to expand its asset purchases beyond the $1.1 trillion already pledged, the paper said.

But the Fed is likely to ponder carefully what its next move will be, to see how the financial conditions respond to the quantitative easing measures it has already taken, the paper added.

Contact Europe: Economy

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