US politicians 'must act to avert a recession'

The United States must start tackling its long-term economic problems head on instead of relying on the Federal Reserve to revive the economy, according to one of Wall Street's leading economists who predicted the last recession.

US President Barack Obama
As President Barack Obama called for members of Congress to put their country before politics as the US economy stutters, David Rosenberg, chief economist at Gluskin Sheff, said there was now a real risk of the world's largest economy going into recession.

"If you're looking for something positive it will have to be from the political arena," said Rosenberg. Washington should deliver a serious plan for the deficit, reform of the tax system and overhaul the country's energy policy.

After another blitz of worrying data from the US, pressure is growing on the Federal Reserve chairman Ben Bernanke to announce new measures to pull the economy from the brink at the US central bank's annual gathering in Jackson Hole, Wyoming, this coming week.

Mr Rosenberg, who in 2007 forecast the last recession some months before it began, said there was little left the Federal Reserve could do. "The Fed doesn't have the cannon," said Mr Rosenberg. "I'm sure Bernanke has more rabbits in the hat, but the question is how effective will they be?"

While many expect Mr Bernanke to go no further than lay out the Fed's options, including a third round of quantitative easing, much attention will be focused on the Fed chairman's speech this Friday.

The latest batch of weak data signalled that US consumers are again retrenching on a scale that threatens to topple the world's largest economy back into recession.