Fed embraces economic package
WASHINGTON (AP) - January 17, 2008 Bush spoke with congressional leaders as top House aides worked
on an economic rescue package that included more money for food
stamp recipients and the unemployed as well as tax rebates and
cuts.
Officials described the developments on condition of anonymity
until a formal announcement was made, and no further details were
immediately available about the size of the rebates or components
of the emerging package.
One official said the president did not push for a permanent
extension of his 2001 and 2003 tax cuts, many of which are due to
expire in 2010. That would eliminate a potential stumbling block to
swift action by Congress, since most Democrats oppose making the
tax cuts permanent.
Bernanke voiced support for a stimulus package in an appearance
before the House Budget Committee, but said it had to be quick and
temporary.
"Putting money into the hands of households and firms that
would spend it in the near term" is a priority, Bernanke told the
committee.
Bush planned to talk about his criteria for the program at the
White House Friday morning and later that day in a speech at a
manufacturing plant in Frederick, Md.
In his committee appearance, Bernanke said such a plan should be
aimed at quickly getting cash into the hands of people, especially
those with low and moderate incomes. Bush wasn't going to spell out
any specifics in his remarks, but instead demand that any package
be effective, simple and temporary, said White House press
secretary Dana Perino.
Perino said that Bush and congressional leaders from both
parties consulted via conference call Thursday for about 30 minutes
about their plans to work together on growth measures. In the
Capitol, House Speaker Nancy Pelosi, D-Calif., has talked of a
package totaling $100 billion or more.
The rush to swing behind a stimulus plan underscored the
political imperative of responding to a growing concern about the
possibility of recession.
Bernanke declined to endorse any particular approach in Capitol
Hill appearance, but did say that he preferred one that would act
quickly, and not have a long-term adverse impact on the deficit.
"The design and implementation of the fiscal program are
critically important," he said.
He spoke as senior aides to House Democrats and Republicans
reviewed an emerging plan that included tax rebates for
individuals, breaks for businesses and more money to help food
stamp recipients and the unemployed. Additional aid to help states
complete construction projects was also among the proposals under
consideration, according to officials familiar with the
discussions. They spoke on condition of anonymity, saying they did
not want to pre-empt an eventual announcement.
Additional details were not immediately available.
Perino said conference call showed that both parties basically
were in agreement that they needed to do something, and that they
needed to cooperate and that it needed to happen quickly.
The White House had said earlier that Bush concluded "some
boost is necessary." Previously, it said the president was only
considering only a short-term boost. Perino said Bush was convinced
by the daily economic briefings he received while away on a Mideast
trip, and she said that he won't necessarily wait until his State
of the Union address at the end of the month to announce specifics.
White House deputy press secretary Tony Fratto said he saw "no
obstacle" to a speedy agreement with Congress.
The statements by the White House Thursday marked the first time
that it has confirmed that Bush supports government intervention.
"There is reason to be hopeful when the president recognizes
there is a problem in the country," Pelosi said after the
conference call with Bush.
Boehner said he was encouraged.
House Majority Leader Steny Hoyer, D-Md., said, "It was useful
and I hope it leads to a cooperative effort to come up with
something to help stimulate the economy and do so quickly in a
bipartisan fashion. He indicated that he wants to work together to
get something done."
Pelosi said that officials "have to spend the money, invest the
resources, give the tax relief in a way that again injects demand
into the economy, puts it in the hands of those who need it most
and into the middle class ... so that we can create jobs."
But Boehner said: "For this bill to become law, it cannot
become a Christmas tree. It's hard to get anything moving within a
year, and most of us believe that if we're going to have a
stimulative effect at helping to revive what is becoming a sluggish
economy, it needs to happen quickly."
Fratto said Bush does not believe that a stimulus should be
offset - or paid for - by any tax or spending changes elsewhere.
Some moderate, deficit-hawk Democrats have pushed for one but it is
not expected to be part of a package.
Bernanke forecast slower growth in 2008 but not a recession.
When asked about the potential effect of a fiscal stimulus
package totaling around $100 billion, he said the impact could be
"significant" and not "window dressing." Some have floated
packages that would range in size from $50 billion to billion to
$150 billion - all of which are in the range of "reasonable,"
Bernanke said. Rebates can be particularly useful, he added.
"Getting money to people quickly is good, and getting money to
low and moderate-income people is good, in the sense of getting
bang for buck" because they tend to spend it quickly, Bernanke
said. Research shows that the affluent spend some of their rebates,
he said.
Temporary expensing and depreciation provisions for businesses
also could spur spending, which would help the economy, he said. As
it puts together a package, Bernanke added, "Congress might want
to consider a diversified mix of elements."
But he warned: "I hope Congress can resist having a huge list
of things" that would lard up legislation and may not do much to
help bolster the economy in the short run.
The fragile state of the economy has gripped Wall Street and
Main Street and is a rising concern among voters. The situation has
galvanized politicians - including those vying to be the next
president - and poses the biggest test to Bernanke, who took over
the Fed nearly two years ago.
Said House Budget Committee Chairman John Spratt, D-S.C.: "It
has become increasingly clear that our economy is slowing down,
entering a slump if not a recession." Rep. Dan Lungren, D-Calif.,
likened a stimulus package to a "vitamin B-12 shot."
In his testimony, Bernanke again pledged to aggressively slash a
key interest rate as needed to bolster an economy that is weakening
under the strains of a severe housing slump and credit crisis.
Many economists believe the Fed will lower its key rate, now at
4.25 percent, by a bold half-percentage point at its next meeting
on Jan. 30. Some critics on Wall Street and elsewhere have
second-guessed Bernanke for not taking action sooner and more
forcefully.
Although Republicans and Democrats differ over what provisions
should be part of any economic stimulus package, there's widespread
agreement that tax rebates along the lines of the $300-$600 checks
provided in 2001 are likely to be part of the measure. The country
last suffered a recession in 2001. This time around, the rebates
could be larger. It's also likely that unemployment benefits will
be extended as part of the package.
"To be useful, a fiscal stimulus package should be implemented
quickly and structured so that its effects on aggregate spending
are felt as much as possible within the next 12 months or so,"
Bernanke told lawmakers.
He also said that any such package must be temporary to avoid
making a big boost to the federal government's budget deficits and
adding to the country's long-term fiscal burdens.
"The nation faces daunting long-run budget challenges
associated with an aging population, rising health care costs and
other factors. A fiscal program that increased the structural
budget deficit would only make confronting those challenges more
difficult," Bernanke warned.
Before Bernanke spoke, there was yet more downbeat economic and
financial news. The Commerce Department said new-home building
plunged last year by 24.8 percent, the biggest drop in 27 years.
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AP Special Correspondent David Espo contributed to this story.
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