The nation’s budding economic recovery is in danger as the financing squeeze that began in the subprime mortgage market spreads to other sectors, according to Bloomberg News.
“The contagion and contamination I’m most concerned about is what effect this will have on the consumer,” William Rhodes, senior vice chairman at Citigroup Inc. in New York, told Bloomberg. But the corporate market is also being affected by higher interest rates and tighter lending criteria, which have spurred more than a dozen companies to postpone or restructure debt sales in the past two weeks.
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The result may be economic growth much slower than the “moderate” 2.5-percent to 3-percent rate that Federal Reserve and outside analysts had been predicting for the last half of 2007. In the second quarter, the economy probably expanded at an annual rate of 2.8 percent, rebounding from a first-quarter rate of 0.7 percent that was the slowest since the end of 2002, according to Blue Chip Economic Indicators, Bloomberg said.
Economists at International Strategy & Investment Group, UBS AG and Commerzbank AG all say the U.S. economy’s growth rate is unlikely to reach 2 percent in the second half. Stock-market investors so far seem less gloomy, bidding share prices to near-record highs. But Alan Blinder, a former Fed vice chairman who’s now a professor at Princeton University in New Jersey, said “the market is overlooking the slowing effect” of higher borrowing costs.
