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Last Updated: Monday, 7 January 2008, 12:59 GMT
Action urged over US economy woes
US homes
The sub-prime crisis is largely blamed for the US economy woes.
Top economists have warned that a US recession looks increasingly likely and have urged government action.

Former US Treasury Secretary Lawrence Summers, called for a $75bn (38bn) package to help stimulate the economy.

And National Bureau of Economic Research president, Martin Feldstein said that the chances of a recession occurring had now risen above 50%.

The comments follow a report showing that US unemployment had hit a two-year high last month.

Impact needed

Writing in the Financial Times, Mr Summers said that relying on the Federal Reserve to cut interest rates was not enough to boost the flagging economy.

Instead he proposed tax cuts and benefit increases for those Americans on the lowest incomes, arguing that they were suffering most from the crisis in the mortgage market.

To have an impact, Mr Summers said that between $50bn and $75bn had to be spent on the measures, which needed to be in place by the summer.

But he also warned that the plan needed to be temporary, as America already had a large budget deficit.

Rising unemployment will make consumers more nervous about their prospects, said Feldstein, also urging Congress to cut taxes to restore confidence.

The National Bureau of Economic Research, which Mr. Feldstein heads up, is the official body that tracks US recessions. According to its data, the economy last went into recession into 2001.

Job concerns

Friday's report on the US labour market raised concerns that the US economy was heading for recession.

It showed that 18,000 jobs were created in December - many fewer than economists were expecting - and that the unemployment level had risen to 5%.

There was also evidence that spending was weak over the holiday period, which, combined with near-record oil prices, could prompt a sharp slowdown this year, economists said.

Some now expect policy makers at the Fed to cut interest rates by as much as half a percentage point when they meet later this month.

A quarter point cut, to 4%, is seen as almost certain.

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