US house prices dropped 22.8 per cent over the last three months as American consumer confidence signalled the worst level of consumption since since 1974.

Wall Street economists described the statistics as "incredibly awful" and indicated that the likelihood of the US Federal Reserve raising interest rates when it meets today and tomorrow was very remote.

The numbers will come as a severe blow to Washington which had hoped that this summer's $150 billion tax rebate programme would lift the US economy out of the gloom.

However, the housing recession - which shows no sign of abating - record gasoline prices and rising food costs have conspired to offset the impact of the fiscal stimulus package.

According to the S&P Case-Shiller house price index, considered as the most authoritative measure of US property values, the price of the average American home fell 1.4 per cent in April from March, and by almost 23 per cent over a three month period.

The rate of the April fall however, had slowed, with the index recording 2 per cent monthly declines in the past. The index measures house prices in 20 metropolitan areas in the US - last month, Miami and Phoenix were the worst performing cities both down 3 per cent.

At the same time, Washington published official figures measuring US consumer confidence in June.

The data showed that Americans had the least confidence in their finances since records began in 1967. If bourne out, Wall Street expects the lack of confidence to translate into a 3 per cent slide in overall consumption.

Consumer demand is critical to the US economy, accounting for around two thirds of growth.

The June consumer confidence index dropped to 50.4 from 58.1, well below the consensus of 56.0.

Ian Shepherdson, chief US economist at High Frequency Economics, said: "This is incredibly awful. Even as some people spend their tax rebates - chain store sales growth hit a nine-month high last week - the majority appear to be overwhelmed by the surge in gasoline and food prices, and the drop in stock and home prices.

"Talk of higher rates probably isn't helping either. This is what's coming when the rebates are spent. Rate hike? You're kidding, right?"

The US central bank is facing a dilemma as its interest rate setting committee met today and tomorrow. On the one hand, the bank wants to leave rates low - they are currently at 2 per cent - to help stimulate a recovery, but on the other, the Fed is anxious to contain inflation which is being stoked by food and fuel prices.

Explore Economics

• Pre-Budget Report 2008

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts