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To: RetiredNow who wrote (9713)	11/26/1997 9:29:00 PM
From: Kai-Uwe	Respond to of 97611

Rate drops in the near future??? K. Economy to Plow Ahead Despite Asia Woes November 26, 1997 6:17 PM EST By Caren Bohan WASHINGTON (Reuters) - A deepening financial crisis in Asia could slice as much as a percentage point off U.S. growth in 1998, but the world's largest economy is expected to soldier on, propped up by healthy demand at home. This week's collapse of Yamaichi Securities Co. Ltd. left policy-makers and investors worrying that Japan could be the next victim of the turmoil that has engulfed Thailand, Indonesia and South Korea. Closer to U.S. borders, there are also fears of reverberations in Brazil and Argentina. Yet experts say that in even in a worst-case scenario for the global economy, the seven-year U.S. expansion should remain intact. ''There is a big downside risk that the economies in Asia could be worse off than expected and that the situation could last longer than people had thought,'' said chief economist Kurt Karl of the WEFA Group, a forecasting firm in Eddystone, Pa. ''Even then, you are talking about a loss of a percentage point to (gross domestic product) growth,'' Karl said. ''That would put us down to 1-1/2 percent to 2 percent GDP growth. It's quite a bit slower but it doesn't knock us out of the water.'' Exports have been a big driver of U.S. growth, surging by an average of 8.5 percent annually since the beginning of the economic upswing in 1991. However, with the strengthening of the dollar, exports have been virtually flat over the past few months and the recent global events may portend a drop-off. Still, close to 88 percent of all the goods produced in the United States are consumed domestically, leaving the economy relatively insulated from problems abroad, economists said. In a revised estimate of gross domestic product for the third quarter, the Commerce Department said the economy grew 3.3 percent in the three months to September, bringing the average for the past four quarters to a fiery 4 percent. Many economists believe that rate is unsustainable and have said that if it were not for the Asian troubles, the Federal Reserve might be pushing interest rates higher to keep the economy from overheating. Instead, growth will be tempered by weaker export demand, probably slowing to around 2.5 percent, economists said. Most estimates of the effect on the United States from Asia's problems range between a quarter percentage point and three-quarters of a point -- forecasts that White House chief economist Janet Yellen said seem ''reasonable''. ''I think the effects will be small,'' said Joel Popkin of the consulting firm Joel Popkin and Co. ''The U.S. economy will probably exceed expectations.'' Flight to quality has prompted a strong rally in bonds, pushing the yield on the benchmark 30-year U.S. Treasury bond down to almost 6 percent, which Popkin said will stimulate interest-sensitive sectors such as housing. In addition, he said lower materials prices resulting from the strong dollar will contribute to a housing boom. The WEFA Group's Karl looks for strong demand coming from both the consumer and business sectors. ''There is an awful lot of domestic demand growth in the U.S. economy and that momentum will sustain us through a little bit of a rocky period,'' Karl said. Barry Bosworth, economist at the Brookings Institution, said Japan will be key to how much of a hit the United States will take. ''Japan is getting hurt by the increased export competition from countries in this region with cheaper currrencies. Plus they have loaned a lot of money to Korea and they will be the ones to suffer if South Korea has to default on large amounts of debt,'' he said. A severe recession and more financial disaster in Japan would mean a major shock to the United States that would probably necessitate an interest-rate cut by the Federal Reserve, Bosworth said. ''We could manage but it would definitely require major changes in monetary policy,'' he said.