U.S. could face second recession next year
NEW YORK (Reuters) - Although the U.S. economy is expected to return to growth later this year, there is a danger of a second recession if monetary easing and a weak dollar leads to increased inflation expectations, a report said on Wednesday.
Massive stimulus spending and moves by the Federal Reserve to fuel economic activity is expected to jump-start the anemic U.S. economy in the last quarter of this year after it contracted 6.3 percent in fourth quarter of 2008.
But the Fed's moves to boost the economy by slashing interest rates and buying up billions in government debt could have undesired consequences, The Conference Board, a private research group, said in the report.
"If the United States experiences a too-rapid recovery, there may be a risk of another recession in 2010," said Bart van Ark, vice president and chief economist of The Conference Board.
"It may fuel expectations for a return to inflation, adding to the uncertainty concerning the pattern and path of economic recovery," he said.
The U.S. economy has the potential for a "double-dip" recession, Van Ark noted, similar to 1980 and 1982, as commodity prices rise on the back of a falling dollar and monetary easing.
He added, however, that the likelihood of this scenario taking place is small as deflation risks are great, while government stimulus spending should stem further economic decline and ease the flow of job losses.
The U.S. economy could contract by 2.6 percent in 2009, the largest annual decline since 1946, the Conference Board said.