Housing Slump May Force Fed to Pare Annual U.S. Growth Estimate (Rich Miller and Matthew Benjamin)

  ``We're in the midst of a classic boom-bust credit cycle in housing,'' says Andy Laperriere, managing director at International Strategy & Investment Group in Washington. ``And the bust is just beginning."

  Feb. 26 (Bloomberg) -- The United States may be saddled with more sluggish growth than the Federal Reserve expects as the economy struggles to shake off a lingering hangover from the housing bubble.

  ``We're in the midst of a classic boom-bust credit cycle in housing,'' says Andy Laperriere, managing director at International Strategy & Investment Group in Washington. ``And the bust is just beginning.''

  The worst case: Distress already evident in the riskiest part of the mortgage-lending industry turns into a full-scale credit crunch that cripples the housing market and the economy.

  More likely, say forecasters at ISI, UBS AG and Deutsche Bank AG, is an economy stuck at about a 2 percent growth rate in coming quarters, down from 3.4 percent in 2006, as housing demand remains in the doldrums.

  That's below the Fed's forecast for 2007 and might prompt Chairman Ben S. Bernanke and his colleagues to dial back their concern about inflation and focus more on growth. At their last meeting, on Jan. 31, Fed policy makers discussed dropping their anti-inflation bias in favor of a more even-handed approach. In the end, they decided against a change ``at this time,'' according to minutes released on Feb. 21.

  In testimony to Congress Feb. 14 and 15, Bernanke identified the depressed housing market as the biggest risk to the Fed's forecast for modest growth of 2 1/2 to 3 percent this year.

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