US finance chiefs see growth but hint at rate cut

14 February 2008 18:48  [Source: ICIS news]

WASHINGTON (ICIS news)--Top US financial policymakers said on Thursday that while the country’s economy is fundamentally strong and a recession is unlikely, sluggish growth in months ahead may warrant a further cut in interest rates.

 

Federal Reserve Board Chairman Ben Bernanke and Treasury Secretary Henry Paulson told the Senate Banking Committee that growth in exports, recent enactment of a $168bn (€116bn) stimulus package and financial rescue efforts aimed at the depressed housing sector should sustain the economy sufficiently to avoid a recession.

 

Bernanke, who as Fed chairman heads the US equivalent of a central bank, told the Senate that “my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt”.

 

The Fed chairman indicated, however, that while “the baseline outlook envisions an improving picture, it is important to recognize that downside risks to growth remain”.

 

That statement, along with Bernanke’s view that “longer term inflation expectations should remain reasonably well anchored”, is seen as hinting broadly of another Fed interest rate cut when the central bank’s policy board meets on 18 March.

 

Paulson said that the US economy “is fundamentally strong, diverse and resilient”.

 

In addition, despite what Paulson termed a “necessary housing correction”, he said he is confident “that our economy will continue to grow, although its pace in coming quarters will be slower than what we have seen in recent years”.

 

Noting that President George Bush signed the $168bn stimulus bill yesterday, Paulson said his Treasury Department soon will be sending “payments out to more than 130m American households”.

 

“Together, the payments to individuals and the investment incentives for businesses will help create more than half a million jobs by the end of this year,” Paulson said.

 

He also said that the Bush administration will continue to work aggressively to help homeowners with shaky loans keep their homes and avoid flooding the housing market with still more foreclosed properties.

 

“I have confidence in our markets,” Paulson said. “They have recovered from stressful periods in the past, and they will do so again.”

 

($1 = €.69)

By: Joe Kamalick
+1 713 525 2653

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