IMF: World Economy Entering 'Dangerous Phase'

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The International Monetary Fund is warning that the global economy is in worse shape than anyone expected.

The global body has downgraded its economic outlook for the U.S. and Europe through the end of next year.

"The global economy has entered a dangerous new phase. The recovery has weakened considerably and downside risks have increased sharply," Olivier Blanchard, chief economist for the IMF, said Tuesday.

In June, the IMF said the U.S. economy would grow 2.5 percent this year and 2.7 percent next year. Now, it says the economy will grow just 1.5 percent in 2011 and 1.8 percent next year.
  
Even with a slight improvement next year, economists say it won't be enough to lower the unemployment rate.
    
The IMF blames the situation in the U.S. and Europe on financial turmoil and slow growth. Sharp stock market drops in the U.S. have also hurt consumer and business confidence.
    
So what's the answer?

"Strong policies are needed both to improve the outlook and reduce the risks," Blanchard said.
   
The Federal Reserve is expected to give the U.S. economy a shot in the arm with a plan to push the yield on Treasuries still lower. 
    
Such a move would reduce the rates on mortgages and other consumer and business loans.
    
U.S. mortgage rates are already at 60-year lows. The average rate on a 30-year fixed mortgage is 4.09 percent, the lowest rate since 1951.

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