PARIS (AFX) - The US Federal Reserve looks set to start raising interest rates from "around mid-2002" as the economic recovery consolidates, the Organisation for Economic Cooperation and Development said in its semiannual Economic Outlook. The federal funds rate, cut by 475 basis points to 1.75 pct during 2001, "is assumed to reach 4.50 pct" by late next year, the OECD said. "The Federal Reserve's target rate has not changed since early December 2001, but the OECD projections incorporate an increase in short-term rates starting around mid-2002," it said. "The increase is assumed to take place at a moderate pace, however, as inflation pressures are set to remain subdued and the output gap is not projected to close in the near term," it said. It said monetary policy responded quickly to last year's downturn, and attention should now turn to the timing and speed of withdrawing the stimulus. "As the labour market is set to improve, interest rates should be raised, moving first to a neutral and ultimately to a restrictive stance as the expansion broadens," it said. "Fiscal policy has loosened considerably. The budget balance has worsened with new spending priorities and tax measures, and renewed restraint will be needed to re-establish the surpluses necessary to confront the ageing problem," it said. The OECD said the US recession last year "was short and shallow, and a recovery has taken root". It added: "The economy appears to be rebounding in the first half of 2002, and the recovery is likely to broaden in the second half of this year." The OECD cautioned however that the underlying strength of the upturn is difficult to guage. While growth could accelerate quickly if households kept up "their recent spending binge", high oil prices could undermine any rise in disposable income, it warned. The recovery in business fixed investment could fail to materialise if the profitability of future investments is weaker than expected, it said This could drive down share prices, causing domestic demand to weaken and foreigners to re-evaluate their willingness to finance the current account deficit. "This could potentially place downward pressure on the dollar and upward pressure on costs and prices," it said.