Paul McCulley, managing director at PIMCO, told attendees today at the TD Ameritrade annual conference in San Diego that the U.S. economy is going to have a soft landing.

   McCulley said that the probability of a recession had declined noticeably in recent months. "Recessions are the consequence of an inflationary problem or a bursting bubble," he said.

   The downside risk is in the property market, where a bubble is currently bursting, he said. "At a 5.25 Fed Funds rate, the Fed has lots of room to cut rates. The property market is going to be [like] cement boots on the economy for quite awhile. People who were buying property not to live in but to sell to a bigger fool are finding out they are the fool," he said.

   McCulley suspects that by the second half of 2007 the Fed will have to cut rates "as an insurance policy" against problems in the property market. That will be equivalent to the Fed taking America to Dairy Queen, and the stock market loves ice cream, he said.