Two of the world’s most influential financiers have given warning that the American economy will deteriorate more than the US Federal Reserve has anticipated and that its housing recession has “a long way to go”.

Speaking in Tokyo, Alan Greenspan, the former Chairman of the Fed, said that the burgeoning inventory of unsold homes represented a significant risk to America’s financial markets and the wider US economy.

He also warned that he did not know how rapidly the glut of property could be reduced. “We have a long way to go,” Mr Greenspan said. “The critical issue on the whole sub-prime, and by extension the whole financial system, rests very narrowly on getting rid of 200,000 to 300,000 excess units in the United States.”

George Soros, the billionaire investor, added to the gloom at a speech at New York University on Monday evening. He said that the US economy was on the verge of a serious correction and that the Fed may have underestimated its severity.

A number of Wall Street economists have already cut their growth estimates for the second half and are predicting stagnation over the period. Wall Street is anxious over whether the credit crisis in the financial markets this summer will lead banks to limit lending for mortgages, loans and credit cards, which could hit growth.

Mr Soros said: “I think we are definitely in for a slowdown that I think will be a bigger slowdown than Ben Bernanke [the Fed Chairman] is seeing.”

Mr Greenspan explained that about $900 billion (£431 billion) of sub-prime mortgages have been packaged up and sold on in the forms of bonds. He said that the excess level of unsold homes is driving the prices down and eroding the value of the securities backed by those mortgages.

His warning came after Bill Gross, chief investment officer at Pimco, the world’s biggest bond fund, said that the Fed could not afford to let American property prices fall further and that it would need to cut rates aggressively, perhaps to 3.5 per cent. They are currently running at 4.5 per cent.

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