International Group Sees Drop in U.S. Inflation, No Recession

The U.S. inflation rate is expected to level off next year and output and employment growth also could decline moderately, but a recession is not likely, an international economic report said today.

In its annual report on the American economy, the Paris-based Organization for Economic Cooperation and Development said the United States’ primary concern should now be to reduce its nearly $150-billion federal budget deficit and work toward a more neutral tax system.

The report by the group of 24 top industrialized nations said the inflation rate should stabilize at just below 5%, compared to the 1989 rate of 5% to 5.5%. Output and income growth should slow “moderately” because of higher production and union costs. But overall economic growth is expected to continue at around 2.5%, holding recession at bay.

“Financial markets appear relatively confident that the Federal Reserve strategy will succeed in stabilizing inflation without pushing the economy into a recession,” the report said. “The strategy of gradually tightening (the money supply) seems to have worked relatively well so far.”

One OECD economist said the United States had had “seven fat, extremely fat years.”

“It has created 20 million new jobs and seen a 30% overall growth. That is a pretty fantastic performance,” said the expert. “But after such a positive stretch of growth, one would hope the deficit would be healthier.”