World needs coordinated economic action: IIF

Volunteers walk in front of a projection of the globe as they prepare the main stage for the World Economic Forum (WEF) in the Swiss Alpine resort town of Davos January 22, 2008.

DAVOS, Switzerland (Reuters) - The world's leading economies must follow the Fed's emergency economic aid and implement a coordinated action on monetary and fiscal policy, the head of a global banking group said on Tuesday.

Earlier on Tuesday, the Fed slashed a key interest rate by the biggest amount in more than 23 years to head off a U.S. recession and halt a global rout in stocks.

"It is a strong measure, it is very timely... (But) it's not possible to say this is enough because there are so many factors underlying a lack of confidence and it will take some time for confidence to rebound," said Charles Dallara, managing director of the Institute of International Finance.

"I would like to see a more globally coordinated action to support the Fed," Dallara told Reuters ahead of the World Economic Forum.

"It's time to see a more global coordination on the fiscal and monetary policy as well as exchange rate policies to try to get the global economy head into the right direction," he said in the alpine ski resort of Davos, Switzerland.

The IIF represents more than 360 private-sector banks.

G7 TOO SMALL

In a rare action between regularly scheduled meetings, the U.S. central bank cut the benchmark federal funds rate by three-quarters of a percentage point to 3.5 percent, its lowest level since September 2005.

Coming just less than a month before finance chiefs of the Group of Seven meet in Tokyo, the Fed's action followed some of the biggest one-day falls in European and Asian equities since the September 11 2001 attacks on the United States.

Dallara said the G7 might be a relic of the past in dealing with challenges the global economy is facing now.

"The G7 needs to be extended immediately to the G11 to invite China, India, Brazil, and Russia. The G7 is anachronistic. The G7 to be meeting without China or India shows that it is living in the past, not in the present," he said.

"We need to get China in the table; China is an important player in alleviating global imbalances. They have been accelerating their exchange rate movements lately as well as monetary policy. They can contribute more."

NO RECESSION YET

The top question in the minds of the more than 2,700 business and political leaders gathering in Davos is whether the U.S. economy is already in a recession.

Dallara said the world lacked the evidence to declare a U.S. recession.

"Everyone is jumping on a bandwagon of recession but frankly the evidence is in yet... We still have parts of the U.S. economy doing well - clearly housing is a big drag in the economy but it's not clear we are in a recession and I don't think we should talk ourselves into a recession," he said.

For full coverage, blogs and TV from Davos, see: here