The US economy, a $15 trillion giant which makes up 25% of the world economy, is in trouble, and could drag down world growth. The US central bank has cut interest rates aggressively and the US Congress is planning an economic stimulus package to prevent a recession. ECONOMIC GROWTH

In the past few years the US economy has been growing strongly. But recent troubles in the housing and credit markets have hit the economy hard, with growth slowing sharply at the end of 2007. Economic forecasts suggest that the US growth in 2008 could be cut by half to about 1.5%. INFLATION The US economy is also facing significant inflationary pressures because of record oil prices which have pushed up the price of petrol and heating oil. While the Fed does not have an explicit inflation target, inflation above 2% is normally enough to set off the danger signals. However, core inflation has been more contained, and asset prices like housing and stocks have been falling. UNEMPLOYMENT So far the economic slowdown has not led to a big rise in unemployment, but job growth has slowed to a crawl. Firms often wait until they have a clearer picture of the economy before laying off workers. But unemployment is higher than it was at the end of the last boom in the l990s. FED RATE CUTS The US central bank, the Federal Reserve, has aggressively cut rates in 2008 to ward off a recession. And it has said that it could make further "timely" interventions as there are still "downside risks" to growth. But some analysts worry that if the Fed continues to cut rates, it could lead to another asset bubble in the future. BUDGET DEFICIT

The Bush administration and the US Congress have moved quickly to agree a $150bn temporary stimulus package to help boost economic growth. The large US budget deficit limits their room for manoeuvre. The package will double the size of the US deficit which was slowly improving. In the longer term, costs will rise as more people claim social security and Medicare payments as the Baby Boomer generation reaches retirement. FALLING DOLLAR

Another problem for the US economy has been the fall in the value of the dollar, which has dropped sharply against the euro, the currency used by the major EU economies. The huge US trade deficit, and lower US interest rates, have made the dollar less attractive to investors. The weaker dollar will hurt countries which depend on exports to the US, because their goods will become more expensive, and could boost US inflation.



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