Wall Street is expecting the US Federal Reserve to cut interest rates by another half a percentage point to 3 per cent when it meets tomorrow and on Wednesday, which would push down the cost of borrowing in America by almost a third in just over a week.

New York’s Treasury bond market has already priced in a cut of 50 basis points in US interest rates as increasingly Ben Bernanke is perceived as a Fed Chairman keen to meet the expectations of a nervous financial community. Last Tuesday, the Fed moved to cut interest rates by three quarters of a percentage point to avert a crisis in the bond insurance market and to address anxieties on Wall Street that the United States is on the brink of a recession.

Kevin Logan, chief economist at Dresdner Kleinwort, the investment bank in New York, said: “We were expecting a 50-basis-point cut on January 30 before the Fed cut [on Tuesday] and we’re still expecting a 50-basis-point cut.”

Expectations of the rate cut came amid comments at the weekend from Alan Greenspan, former chairman of the Fed. In an interview with The Sunday Times, he said he did not believe that there was sufficient evidence to show that the US is in a recession but he gave warning that there was a greater than 50 per cent chance that it would be. He added: “Growth in the United States at the moment is probably zero. We are at stall speed, and we are vulnerable.”

Wall Street will have a good deal of economic data to digest this week. Alongside President Bush’s State of the Union address tomorrow, Wash-ington is expected to flesh out details of its $150 billion (£76 billion) fiscal stimulus package. Keenly awaited growth numbers for the fourth quarter of 2007 are also due.

The gross domestic product statistics are critical because they will indicate how rapidly the American economy has shrunk for the last quarter of 2007 and how close the US is to a recession. Many Wall Street economists reckon that during the fourth quarter growth will have slowed well below 2 per cent on an annualised basis as the crisis in the credit markets during the second half of last year spilled over into the wider economy.

While one measure of a recession is two consecutive quarters of negative growth, another measure is the unemployment rate, which rose rapidly during 2007. The number of unemployed workers averaged around 6.9 million during the first half of 2007 and was up to 7.5 million by the fourth quarter.

Monthly non-farm payroll data is also due this week, with some expecting a modest rise from 18,000 to 40,000 last month. Trade data due this week is forecast to show a weakening in the manufacturing sector, heightening the risk of an imminent recession.

Ian Shepherdson, of High Frequency Economics, the New York consultancy, said: “Is the US in a recession? We don’t know. The data so far is ambiguous. What is clear is that the economy is shrinking. A recession is just a technicality. If it looks like a recession and feels like a recession; you may as well be in a recession.”

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