The US economy faces more uncertain times ahead with talk of a recession and the fall-out from the sub-prime mortgage crisis.

That is the view of HSBC Securities (USA) Inc.'s managing director and chief economist, Ian Morris, who gave a presentation about the current state of the American economy to more than 100 of the bank's clients at the Bermuda Underwater Exploration Institute followed by a press conference at the Bank of Bermuda's Front Street headquarters on Friday.

He was joined by Robert Lynch, senior vice-president and head of currency strategy of the Americas at HSBC Bank USA National Association, who talked about currency issues.

Mr. Morris admitted that a lot of uncertainty surrounds the US economy at the moment, with the sub-prime crisis in the States spreading to other parts of the world, in particular Europe.

"The US Federal Reserve is doing everything it can to ease the pressures by slashing interest rates or putting more liquidity into the system," he said.

"But, despite the attempts to unblock the problems within the financial system, it does look like a broader credit crunch is happening in the US economy."

He predicted that the US is going to experience a soft period of growth, while it is going to feel like a recession, even if it does not match the definition of a recession.

Mr. Morris sees the unemployment rate in the US climbing from 5.1 percent to 5.6 percent by the end of this year and rising further to 6.5 percent next year.

"I think we are going to see the Fed continue to cut interest rates to one percent," he said.

"We are in for a long period of low interest rates to try and off-set this period of credit crunch and fiscal policy has to play a larger role."

The new US president would be expected to inject a big financial stimulus in a bid to boost the economy, with the economy following a W-shaped pattern, from zero or negative growth in the first half of 2008, before picking up for the second half following a financial stimulus, and then fading at the start of 2009 and peaking again after that another stimulus, according to Mr. Morris.

"It is going to be choppy and uncertain and the financial markets are going to remain vulnerable," he said.

Estimates for total losses from sub-prime write-offs vary from $300 billion to $500 billion, but the International Monetary Fund predicted it could be as high as $945 billion, with HSBC itself taking a $17.2 billion hit last year, despite profits being up 10 percent.

"The sub-prime crisis did affect a lot of banks, including us," said Mr. Morris. "Because of our focus on the emerging markets, which were not as affected by the sub-prime crisis, our earnings have continued to grow very rapidly, despite what is going on in the US housing market."

Mr. Lynch agreed that the US currency situation was very much in line with the overall economic outlook, particularly in terms of low growth and downgraded expectations in measurable growth of the dollar.

"It is consistent with the dollar reaching historic lows against some currencies and certainly lows across the board against most of them," he said.

"I think it is going to get worse before it gets better and the impact in Europe is going to be more significant."

But Philip Butterfield, CEO of the Bank of Bermuda, who was also in on the meetings, reckons the impact of an economic downturn in the US would not have such a big impact on Bermuda.

"I think our near term outlook is still quite good," he said.

"We are still in a construction boom and soon we will see some development there.

"I think we are facing a period of positive growth - perhaps there will be a bit of contraction, but nothing systemic."