By Michael Gulyaev, BridgeNews
Hong Kong--Feb. 12--The U.S. Federal Reserve's "tightening" policy 18 months ago is to blame for the current U.S. economic slowdown, U.S. billionaire publisher Steve Forbes said Monday. Forbes also said he expected the Fed to cut rates this year by an additional 100 basis points and the U.S. Congress to adopt a tax rate cut proposed by U.S. President George W. Bush. These measures could spur the U.S. economy, which Forbes expects to grow 1-2% this year.
* * * "The U.S. economy is in a slowdown and the principal reason for this is that the Federal Reserve overdid the tightening (when it hiked rates 18 months ago)," Forbes said in his keynote address to the 2001 Asia Banking Conference here.
"They have this theory that prosperity fuels inflation, but there was no inflation overall (then). They raised rates and this caused the slowdown," he added.
The Fed has cut U.S. interest rates by 100 basis points so far this year but Forbes said the Fed still has to cut rates more aggressively. "They should cut the rates by another 200 basis points this year but they will probably only cut them by 100," he said. "The smaller the cut, the slower will be the economy," he added. He also said Bush was likely to push the tax cut bill through Congress before the end of the year, which also should help the economy grow. "Bush will get a tax cut and it will be an enormous change (for the economy)," he said.
Forbes said while a "formal recession" was possible in the United States in 2001, he still expects the U.S. economy to grow at least 1% this year. "We are on the verge of a recession, but we can expect growth to be at 1-2%, and may be next year it will be 5% because the fundamentals are there," he noted. End