Buffet: US economy has "fallen off a cliff" 

Source: ReutersWarren Buffet

Billionaire investor Warren Buffett says the US economy has "fallen off a cliff" and warns that inflation may accompany a rebound.

Buffett told CNBC television that US economic developments were close to the worst case he had imagined and said recovery would not happen fast.

The United States recently reported a 25-year high for unemployment and stocks have plunged to 12-year lows.

"People are confused and scared," he said.

Six months ago Buffet described the economic environment as an "economic Pearl Harbour", referring to the surprise attack in 1941 which spurred the US to join the war.

But Buffet said during his interview on Monday that the current economic climate is at the worse end of the scale he expected.

In an attempt to the US economy back on track, the US government last month signed a $US787 billion ($NZ1.5 trillion) billion stimulus package.

The package includes working class tax cuts, infrastructure spending, help for the poor and unemployed and investment in alternative energy.

However, Buffet said the economy "can't turn around on a dime" and that this could lead to higher inflation when demand returns, warning that it could rekindle inflation worse than that of the late 1970s.

He said that over 10 years investors will do better owning a group of equities.