U.S. at risk of recession from housing

By Mark Felsenthal and Alister Bull

JACKSON HOLE, Wyoming (Reuters) - The weak housing market could topple the country into a full-blown recession and the Federal Reserve should slash interest rates aggressively, one of the country's most prominent economists warned on Saturday.

"Lower interest rates now would help," Martin Feldstein, president of the influential National Bureau of Economic Research, told an annual retreat of central bankers and academics, including a number of senior Fed policy-makers.

Feldstein, who warned of a "multiplier effect" from declining home prices and lower consumer spending, said a cut of as much as 100 basis points might be warranted.

The symposium, hosted by the Federal Reserve Bank of Kansas City in the Grand Teton mountains, is examining the implications of a meltdown in the U.S. subprime mortgage market for borrowers with risky credit.

Evidence the problems have spread to Europe and Australia has hit the availability of credit and roiled financial markets worldwide.

Fed Chairman Ben Bernanke also attended the symposium but left before Feldstein made his remarks.

In a speech on Friday, Bernanke said the Fed would not rescue investors from self-inflicted losses. But he said it would not stand by and allow innocent people to suffer from a wider slowdown, and would it act -- cutting interest rates -- if it was persuaded by the economic evidence.

Financial futures indicate a 100 percent likelihood that the Fed will lower its overnight funds rate by a quarter percentage point to 5.0 percent when policy-makers next meet, on September 18.