The Organization for Economic Cooperation and Development (OECD) warned in its twice-yearly economic outlook on Tuesday that the United States needs to tighten rein on inflation.

The OECD foresaw the US economic growth at 3.6 percent in 2005 and 3.3 percent in 2006, after 4.4 percent in 2004.

"The expansion has continued at a solid pace, driven by domestic demand that has been little restrained thus far by energy price or interest rate increases," it said in the outlook.

"Substantial risks" to projection are posed by inflationary pressures, both domestic and imported, which might intensify faster than expected, and the protracted weakness in exports over recent years that could surprise by its endurance, the OECD said.

It also said that inflation has increased amid tightening resources and rising labor costs. "Further tightening is needed to contain emerging inflationary pressures, not least because long- term interest rates have remained surprisingly low."

The OECD also noted the key Federal Reserve funds rate, which currently lies at 3.00 percent, still lies well below the neutral level, thought to be around 4.50 percent.

"As the policy rate moves up towards neutral or possibly even above, the predictability of the size and speed of further moves is likely to start diminishing at some point, which might contribute to pushing up long rates through a higher term premium, " the OECD said, noting that inflation pressures were "palpable" as unit labor costs rise anew and the dollar's sharp depreciation over the last couple of years slowly feeds through.

Source: Xinhua