“I believe the US economy is now in recession,” Mr Feldstein, President of the National Bureau of Economic Research, told the Futures Industry Association conference in Boca Raton, Florida. “Could this become the worst recession we have seen in the postwar period? I think the answer is yes. I would emphasize the word ‘could’.”

Mr Feldstein’s remarks represent the first time that a member of the NBER’s business-cycle dating committee has publicly described the current downturn as a recession. The economy may not respond quickly to Federal Reserve interest-rate cuts, and a package of tax rebates and investment incentives will offer only a temporary boost, he said.

Investors on Saturday raised their bets that the Fed will slash interest rates by a full percentage point next week after the central bank and JPMorgan Chase & Co. agreed to provide emergency funding to Bear Stearns Cos, the fifth-largest US securities firm. Bush administration officials including Treasury Secretary Henry Paulson have avoided saying the economy is in a recession.  “We have slowed down very significantly. I’m not getting into whether it is a recession,” Paulson said in a National Public Radio interview on Friday. 

The economy expanded 0.6 per cent at an annualised pace last quarter, and economists surveyed by Bloomberg this month predicted the pace will slow to 0.1 pc in January to March.

Job Losses

The US unexpectedly lost jobs in February for the second consecutive month, a government report showed on March 7. A private report Saturday showed consumer sentiment this month sank to a 16-year low.  “By almost every measure the US economy is moving sideways or slightly down for the last few months,” said he, who in January put the odds of a recession at more than 50 per cent.

The collapse of the market for subprime loans, those given to borrowers with the weakest credit, has cost global financial companies $195 billion in asset writedowns and credit losses since the beginning of 2007. The losses have caused liquidity in financial markets to dry up.

Rate-Cut Odds

Traders are betting there’s a 50 per cent chance the Federal Open Market Committee will cut its benchmark rate by a percentage point to 2 percent on March 18, according to trading in federal funds futures. That’s up from a zero probability Friday. The central bank has cut rates from 5.25 pc in August.

“Monetary policy is not likely to have the favourable traction in this slowdown that it has had in the past, in part because of what is happening in housing and in credit markets,” he said. A fiscal-stimulus package will help growth in the second half of the year, though that is “not very likely to do more than cause a pause” in the downturn, he added.