Banking economists put recession odds near 50 percent

WASHINGTON (Reuters) - A panel of banking economists has put the odds of a recession near 50 percent as the economy works through a housing slump this year.

The American Bankers Association's Economic Advisory Committee, a panel of nine banking economists, on Friday projected that the economy will slow to roughly 1.25 percent gross domestic product growth during the first half of this year, picking up to about 2.25 percent in the second half. But the risks of a recession are growing, the panel said in its outlook.

"Falling home prices, elevated energy prices, and strains in financial markets will continue to pose significant challenges to the economy," said Peter Hooper, chief economist at Deutsche Bank Securities in New York, who chairs the ABA panel.

The panel, which meets twice a year, met with Federal Reserve Chairman Ben Bernanke earlier this week to present its latest growth outlook for the year, Hooper said.

In its outlook, the ABA panel is expecting the Federal Reserve to cut its short-term interest rates by 50 basis points at its next meeting this month and by another 25 basis points in both March and April, lowering the federal funds target rate to 3.25 percent from 4.25 percent.

"Rate cuts are justified because of the continuing turmoil in the financial markets and a weakening economy," said Hooper, who added that an economic stimulus package from the president and Congress is badly needed.

He said that it would be something that must be in place by the end of this year to be effective in keeping the economy from going into recession.

The panel's forecast came out just ahead of President George W. Bush's announcement earlier on Friday calling for a stimulus package that would boost GDP by 1 percent. The president indicated that this plan must be put in place quickly.

Meanwhile, in the ABA outlook, economists noted that continued problems in the housing sector -- which are not likely to bottom out until the second half of this year -- along with funding challenges are causing banks to be much more cautious when it comes to lending.

Inflation is expected to remain on the higher end of the Federal Reserve's unofficial comfort range, but Hooper said boosting the economy is more of a concern for the Fed at this time, rather than curbing inflation.