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Soros sees chance of U.S. recession in 2007

Billionaire investor George Soros said on Monday the U.S. Federal Reserve might overshoot in its bid to tighten monetary policy, deflating housing prices and tipping the economy into recession in 2007.
/ Source: Reuters

Billionaire investor George Soros said on Monday the U.S. Federal Reserve might overshoot in its bid to tighten monetary policy, deflating housing prices and tipping the economy into recession in 2007.

A collapse in U.S. housing prices could be associated with a dollar decline, scuppering the Fed's attempt to engineer a "soft-landing" for the economy, he told an audience at the Singapore Institute of International affairs.

Soros said he expected the federal funds rate, now at 4.25 percent, to peak at 4.75 percent.

Nevertheless, the Fed could overshoot, he said, creating a "reasonably significant chance" of a "hard-landing."

"If housing continues to cool while rates are slowing then it could turn into a hard landing," Soros said.

"That's why I expect a recession to happen in 2007, not 2006."

Although economies in Europe and Japan are recovering from slowdowns, they may not be in a position to counterbalance the the impact of a U.S. recession, he said.

"Europe is growing relatively well... but a hard landing in the U.S. will be associated with a decline in the dollar which would hurt the European economy," he said.

Soros said he believed the U.S. housing bubble had reached its peak and was in the process of being deflated.

Soros also said global markets were "as good as you could ask for" and might get worse.