The US economy is on course to bounce back this year with growth of 2.4%, the dollar is set to fall and the Federal Reserve is on a tightrope between a short-term rate cut and a longer term increase, according to the OECD today.
An OECD report forecast growth next year of 2.7%, a sharp reduction from its forecast in April of 3.5% in 2003. It also shaved the April figure for this year, which had been 2.5%.
The Federal Reserve should be ready to cut its key rate further in the short term if the economic recovery flags, but would have to raise rates later in any case, the report indicated.
The OECD said that growth in the US was being driven by 'remarkable' productivity gains, and it raised the possibility of a significant fall of the dollar.
The consumer, who had never 'faltered', and the US Federal Reserve central bank which had been 'skillful', had played vital roles in fighting the downturn, the report signalled, against the background of a stock slump and the September 11 attack on the World Trade Center. Tax cuts to boost consumption had also been important.
But recovery was 'still fragile', depending substantially on continuing strong household spending, in turn sustained by low home-loan interest rates.
The recession last year had been short and mild and the recovery had been driven by big cuts in interest rates and high productivity. Gross national product had declined in the first three quarters of last year, and overall growth in 2001 was 0.25%.
The longest expansion ever recorded was now 'history', the OECD report said.
