UPDATE 2-Fed's Rosengren says US recession not inevitable

(Recasts with comments on economy)

By Svea Herbst-Bayliss

QUINCY, Mass., March 6 (Reuters) - The U.S. economy is in for at least a couple more quarters of weak growth, but a recession is not inevitable, Boston Federal Reserve Bank President Eric Rosengren said on Thursday.

"I certainly think it is possible" for the United States to steer clear of a recession, Rosengren said in response to reporters' questions, in spite of a slumping housing market and weak consumer spending.

The combination of the Fed's aggressive interest rate cuts and a federal fiscal stimulus package should help the economy stabilize over time, said Rosengren.

"It is too early to tell how the economy is going to evolve," he added.

Rosengren said the first quarter of 2008 looks likely to post weak GDP growth of less than 1 percent, following on from 0.6-percent growth in the fourth quarter of 2007.

"For the second quarter people are starting to reduce their forecasts as well," he said, adding that many forecasters look for more strength toward year-end.

Rosengren is regarded as one of the most dovish members of the Fed, but is not a voting member of the central bank's Federal Open Market Committee this year.

In December 2007, he opposed the FOMC's decision to lower benchmark lending rates by 25 basis points, preferring to have made a larger, 50-basis-point cut.

The FOMC has lowered its federal funds rate to 3 percent from 5.25 percent since mid-September. Financial markets anticipate another cut this month, to 2.5 percent or even 2.25 percent.

HOUSING HELP - DON'T DELAY

Speaking to the South Shore Chamber of Commerce, Rosengren called for urgent action on credit market problems and falling home prices.

"There may be a significant cost to delaying needed actions that could restore confidence in the ratings process, the pricing of financial assets, and the impact of declining home prices," Rosengren warned.

Problems that have roiled Wall Street since summer "are beginning to significantly affect Main Street," he said.

"As long as housing prices continue to fall, the decline increases the risks to borrowers, lenders, markets and the economy."

Hopes that the United States could refinance its way out of the subprime mortgage crisis are fading, Rosengren said.

"In recent months we estimated that a fair number of borrowers with subprime mortgages may be able to refinance ... as time goes by, however, declining home prices are experiencing financial difficulties or mounting debt as the economy slows," he said.

Some 16 percent of borrowers with subprime loans in the Boston Fed district would currently meet criteria for Federal Housing Administration programs, Rosengren said, citing bank researchers.

"Over time this pool is likely to shrink," he said, threatening additional foreclosures.

Home mortgage relief programs will likely be needed for those with negative as well as positive equity in their homes, Rosengren said.

Recent market turmoil has shown the difficulty of pricing complex financial instruments and in accurately rating risk on securitized mortgage products, he said.

Some financial products might be better off becoming more standardized or moved from dealer markets to exchange-traded instruments, he added.

"Broadly speaking, products should be structured to better weather periods of illiquidity, and ratings models should take better account of liquidity risk," Rosengren said.

(Writing by Ros Krasny in Chicago, Editing by Chizu Nomiyama)