Reuters
Wednesday, March 12, 2008; 5:26 PM

Wed Mar 12, 2008 9:08am EDT

By Burton Frierson

NEW YORK (Reuters) - The U.S. economy has ground to a halt and probably already is in recession but faces higher inflation this year than thought just a month ago, a Reuters poll showed on Wednesday.

A dismal run of economic data including two months of job market contraction, a declining factory sector and shrinkage in the dominant service sector, has led analysts to downgrade the already grim economic assessment they gave a month ago.

Economists made their forecasts before the Federal Reserve and other central banks teamed up on Tuesday to get hundreds of billions of dollars in fresh funds to cash-starved credit markets, allowing financial firms to use securities backed by home mortgages as collateral for central bank loans.

The latest poll, taken March 7-12, also reaffirmed the disturbing trend set in motion last year of higher median inflation expectations for 2008 even as growth forecasts take another hit.

Economists dropped growth expectations to none at all for the first three months of this year from the anemic 0.2 percent they forecast last month.

The poll also showed a median 60 percent chance of an outright recession, which likely started in the current quarter if not late last year. That was up sharply from 45 percent last month and in January.

"The evidence has built to the point that it is now beyond a reasonable doubt that the U.S. economy has entered recession," said Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis.

A report on Friday that showed the U.S. economy shed 63,000 jobs in February, the biggest drop in non-farm payrolls since July 2003 was a key bit of evidence to back that conviction. It was the second consecutive month that payrolls fell, which also hasn't happened since mid-2003.

Recession is traditionally defined as two consecutive quarters of declining gross domestic product, though some analysts define it more generally.

MORE RATE CUTS

To cushion the economy's fall, analysts expected the Fed to continue its aggressive campaign of monetary easing by taking its benchmark federal funds rate down to 2.5 percent later in the first quarter from 3.0 percent now.

Economists expect the funds rate to hit bottom at 2.0 percent in the second quarter. That was half a percentage point lower than the trough last month's survey predicted the fed funds rate would reach in the first quarter.

However, with the economy reeling amid the worst housing slump since the Great Depression and resulting financial market turmoil, some analysts say monetary policy may not be enough to cure what ails it.

"Rate cuts alone may not suffice," said John Lonski, chief economist at Moody's in New York.

The poll showed analysts expected the Fed to start raising interest rates gradually next year, taking them back up to 2.5 percent in the second quarter 3.0 percent in the third. By then, the economy should be back from the sick bed.

Though gross domestic product will only rise 1.4 percent for all of 2008, the poll found it will likely expand by 2.5 percent in 2009. That compares to the Fed's own forecasts, given in a range, of 1.3-2.0 percent this year and 2.1-2.7 percent in 2009.

Economists see the core consumer price index, which excludes food and energy prices, rising by an average of 2.5 percent in the first two quarters this year.

The persistence of strong inflation will bolster concerns of some that the U.S. could tip into a period of stagflation -- marked by a sluggish economy and robust price growth -- though that threat is still a distant one at this point.

Economists expect core inflation to dip to an average of 2.4 percent in the third and 2.3 percent in the fourth quarter and then decline to 2.2 percent in 2009 as a whole. For 2008, headline inflation will be 3.5 percent, dropping to 2.3 percent in 2009, the poll showed.

ISLAMABAD, Pakistan — Two powerful explosions in suicide attacks minutes apart rocked the eastern city of Lahore on Tuesday, killing 24 people, the Interior Ministry said.

The first blast ripped through the regional office of the Federal Investigation Agency, Pakistan’s chief federal law enforcement agency, killing 12 agency officials and 9 others. A suicide bomber detonated his truck packed with explosives after forcing his way inside the agency’s parking area.

In the second attack, several miles away, two people drove a small pickup truck to a house being used as an office for an advertising company in Model Town, an upscale residential neighborhood, Interior Ministry and police officials said.

They exploded themselves and the truck, destroying the front of the house, damaging neighboring buildings and killing three people, two of them children, the Interior Ministry said.

Model Town is where many senior politicians, including Asif Ali Zardari, the widower of the slain opposition leader Benazir Bhutto, and Nawaz Sharif, the leader of the Pakistan Muslim League-N, maintain homes. A senior Pakistan Peoples Party official, Farahnaz Ispahani, said the party’s senior leadership was in Islamabad.

The two attacks wounded 170 people, including several children, filling many of the city’s hospitals and setting off a wave of panic.

Till this year Lahore, Pakistan’s cultural capital in Punjab, the country’s most populous province, had been spared the recent wave of violence that hit Islamabad, the capital, and northwestern Pakistan, but it has now been struck by three major suicide attacks since January.

There were no immediate claims of responsibility, but the explosions seemed to follow a pattern of recent attacks on law enforcement officials and the Pakistani military by tribal militants, said Tariq Pervez, the director general of the Federal Investigation Agency.

“The building of F.I.A. was a clear target,” Mr. Pervez said in an interview. “Now, the terrorists are stepping up their activity in Punjab.”

He said extremist groups might be singling out Lahore because police officers from Punjab, including officers from his agency, were involved in the operation at the Red Mosque in Islamabad last year, in which government troops killed many militants who had been holed up inside.

The first suicide bombing, which occurred around 9:20 during the morning rush, was so powerful that it was heard for miles. More than two hundred people were reported to be inside the agency building.

The explosion damaged many nearby buildings. The agency office is situated on the busy Temple Road, and commercial and residential buildings and a few schools are nearby.

Local news channels showed gory images of destruction. More than two dozen vehicles, crumpled like paper, lay scattered on the road outside the building.

Plumes of smoke billowed from the building, most of it destroyed. Officials warned that the eight-floor building could collapse at any time. Distraught relatives were shown standing near the debris.

In January, the Interior Ministry circulated a confidential memorandum to provincial police chiefs and officials, asking them to tighten security surrounding several top politicians. The Interior Ministry also identified the investigation agency’s headquarters in Islamabad as a potential target.

The memorandum warned that terrorists had made videos of several government locations and sent them to militants in the semiautonomous tribal areas along the border with Afghanistan, where the Pakistani Army is battling groups sympathetic to the Taliban and Al Qaeda.

The Federal Investigation Agency’s office in Lahore, however, was not identified as a potential target.

By Joshua Partlow and Saad Sarhan

Washington Post Foreign Service
Wednesday, March 12, 2008; Page A10

BAGHDAD, March 11 -- A roadside bomb exploded in southern Iraq on Tuesday as a busload of Shiite pilgrims passed by, killing at least 16 people in the latest in a spate of bombings in the country.

The bus was carrying residents home to Basra after a visit to the Shiite shrines in two other southern cities, Karbala and Najaf. The "huge roadside bomb" blew up about 2:40 p.m. near Nasiriyah, according to Capt. Ali Mohammed of the Nasiriyah police. The blast destroyed the bus and also wounded 22 people, Iraqi officials said.

Shiite pilgrims traveling to and from shrines have been a constant target of insurgent attacks in recent years. Last month, a suicide bomber killed at least 40 pilgrims who were marching near the town of Iskandariyah to mark Arbaeen, the end of a 40-day commemorative period of mourning for Imam Hussein, the prophet Muhammad's grandson.

Iraqi authorities have gone to great lengths to try to secure the routes used by hundreds of thousands of pilgrims, but the attacks persist. The killings have influenced Iraq's sectarian warfare, according to American military commanders, leading Shiite militias to work to drive Sunnis from neighborhoods that border Baghdad's main road to southern Iraq.

Maj. Nasir al-Majidi, spokesman for the security services in Dhi Qar province, said the bombing was meant to target a passing U.S. military convoy but instead hit the pilgrims. All the people killed were from Basra, and most of the injured were women and children, he said.

On Tuesday, the American military announced that three U.S. soldiers had been killed the day before by a roadside bomb that exploded near their patrol in Diyala province, north of Baghdad. An interpreter was also killed. The deaths pushed Monday's toll up to eight Americans, including five soldiers killed by a suicide bomber in western Baghdad.

U.S. military officials have said in recent days that they have noticed an increase in attacks but that they do not believe it has changed the overall trend of declining violence over the past several months.

In other violence Tuesday, 14 people were killed in fighting in Kut, southeast of Baghdad, between Iraqi security forces and the Mahdi Army, a Shiite militia, the Reuters news agency reported.

A suicide car bomb blew up at a checkpoint of a U.S.-backed local security group in Duluiyah, near Balad in northern Iraq. The blast killed four of the local fighters as well as three Iraqi police officers, according to Iraqi police.

And another mass grave, the second in a week, was discovered in Iraq. Iraqi police found 20 bodies, including some corpses of children, during a raid on a farm in the Jalam area south of Samarra.

Special correspondent Zaid Sabah in Baghdad and other Washington Post staff in Iraq contributed to this report.

Washington Post Staff Writer
Wednesday, March 12, 2008; Page A01

The House last night approved one of the most significant changes to its ethics rules in decades, creating for the first time an independent panel empowered to initiate investigations of alleged misconduct by members of the chamber.