My feeling is that Mr Greenspan has not had much of a policy over the last few years

Charles Dumas, Lombard Street Research

But the threat of higher inflation, boosted by growing salaries, threatens to usher in a two-year period of economic gloom, Charles Dumas of Lombard Street Research warned.

Mr Dumas forecast that the US Federal Reserve will be forced "later this year" to raise rates, and replace the effect the strong dollar has had in depressing American inflation.

Higher inflation "will drive a bond market sell-off, and cause a real problem in stock markets" besides forcing the Federal Reserve to reverse interest rate cuts, Mr Dumas told BBC business journalists.

The Fed's chairman Alan Greenspan has "not had much of a policy" anyway, he said.

Tax cuts

But Carl Weinberg, chief economist at High Freqency Economics, predicted a more rosy future.

What we know from economics is that once you announce a tax cut, people start to spend on it

Carl Weinberg, High Freqency Economics

He said that tax reductions planned by president elect George W. Bush, coupled with further rate cuts of up to 1.5%, would ensure a US economic revival in the second half of the year is sustained, with only a short and shallow slowdown this year.

While Mr Bush is unlikely to win agreement for his full $1,300bn package of tax cuts, concerns over US growth will stifle Democrat opposition to the plans, he argued.

"I think he will get about $700bn, which is still a substantial financial stimulus," said Mr Weinberg, chief economist at High Frequency Economics.

And as Mr Bush has pledged to backdate cuts to 1 January, they could quickly boost consumer spending, aiding economic revival.

"What we know from economics is that once you announce a tax cut, people start to spend on it," Mr Weinberg told the meeting.

Perception shift

US consumers are, anyway, less concerned by fears of US recession which have gripped senior figures and European observers, he argued.

The average citizen "does not really perceive this recession yet", he said.

"It has not come down to their circumstances, Mr Weinberg added.

"That's why I think tax cuts will be particularly effective."

Slump in savings

Mr Dumas based his gloomier forecasts largely on historical trends, which showed American householders have spent too much and saved too little.

Saving, which normally accounts for 5% of GDP, is now "in essence negative", Mr Dumas said.

Meanwhile high spending has driven the US to enjoy, in effect, 10 years' worth of economic growth in three years.

The result is a classic financial bubble, "which is in the process of bursting", he said.

Decline in profits

Companies, which in the early 1990s reaped a surge in profits, are set to disappoint investors, he said.

Mr Greenspan is essentially doing the job which 100 years ago JP Morgan did in his spare time

Charles Dumas

The resulting boost in unemployment will depress consumer spending and, with strong wage growth, pose problems for the monetary policy followed by the Fed and Mr Greenspan - "if you can call it policy".

"My feeling is that Mr Greenspan has not had much of a policy over the last few years," Mr Dumas said. "He has been involved in firefighting.

"He is essentially doing the job which 100 years ago JP Morgan did in his spare time - which is to ensure the financial system stays intact."

Mr Dumas predicted that, while the US economy may avoid a technical recession, it would record two years of underperformance.