Subprime Effect on Consumption May Be Modest

August 20 2007 Bloomberg.com Federal Reserve Vice Chairman Donald Kohn said the effect of the subprime-mortgage crisis on U.S. consumer spending will likely be modest though there's risk of a bigger slump. The number of troubled subprime borrowers may be sufficiently small that the direct effect will be "modest", Kohn wrote in a research paper for a conference hosted by Australia's central bank in Sydney today. Still, delinquencies may make investors less willing to provide credit, prompting a more significant effect on aggregate spending.

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