The US economy is at a crossroads. The country is uncertain as to whether it should fight inflation or recession. The Federal Reserve Bank (Fed) has decided to keep the interest rate at 5.25%. Federal Reserve President Richard Fisher said that the US economy is likely to go through a period of slow growth in 2007. However, what he worries about most is inflation, despite the fact that the growth rate was just 1.3% during the first quarter of this year. Retail sales were also down for the first time in seven months, which shocked the stock market. Federal Reserve Board Chairman Ben Bernanke also thinks that the US economy will slow this year, but he doesn't think there will be a recession. However, former Federal Reserve Chairman Greenspan thinks that a recession is possible.

Whether the US economy will experience a recession depends largely on the housing market. An economic soft landing will depend on whether the heated housing market can be controlled.

Since mid-2004, the Fed has tightened financial policy and raised the interest rate 17 times. In mid-2006, the American economy began to slow down. Although the real estate industry has cooled, other industries have not been affected. However, inflation and economic weaknesses coexist. The Fed stopped increasing the interest rate.

Finally, early this year, the real estate market began to influence employment. The unemployment figure reached 125,000. It is predicted that the unemployment rate will increase from 4.5$ to 5% in the fall.

Although the cooling of the housing industry has lowered prices, there is still an excess of supply on the market. Falling housing prices have also influenced consumption. When prices were high, developers were able to increase people's purchasing power through their mortgage and property rights. Today this force is much weaker than it was a few years ago. The core retail volume (except for petrol and cars) has fallen to pre Iraq war levels.

Falling housing prices has decreased the value of property ownership rights. As a result, many mortgagers have delayed payment or breached their contracts. During the first quarter of this year, delayed mortgage payments were at a record high. While the mortgage quality is low, the loan quantity should be high. However, unpaid mortgages continue to grow at double-digit speed, with the total volume twice that of five years ago. Usually the rate of delaying payment and breaching of contracts is lower when loans increase. However, recently, new loans are also been defaulted on. This is the result of the large risk mortgages in the last two years. With the cooling down of the housing market, the demand for raw materials such as iron, steel and cement has also fallen. If the car sales also drop, the US economy will really slow down.

The US real estate market is gradually cooling down after macro-control policies were implemented. The US economy has entered its sixth consecutive year of growth. The possibility of a recession is increasing. The last period of expansion in the US lasted for 10 years. The public is expecting the Fed to decrease the interest rate. However, it is carefully observing inflation. With the overall weakening of the economy, inflation pressure is decreasing. If low inflation continues, there will be room for the Fed to decrease interest rates so the economy can make a soft landing.

As the world's biggest economy, US economic trends are closely watched all over the world.

By Chen Baosen from the Chinese Academy of Social Sciences and translated by People's Daily Online