President Bush and Treasury Secretary Henry Paulson said Monday that U.S. economic indicators are sending "mixed" signals and that they are considering whether a stimulus is needed.
"We're all focused on this," Paulson told the New York Society of Security Analysts. "This is a decision he still has to make," Paulson said of the president. Bush, meanwhile, told an audience in Chicago that "recent economic indicators have become increasingly mixed."
The U.S. stock market is off to its worst start since 2000, as the housing slump and credit crunch weaken job growth and manufacturing. Government reports in the past 10 days showed home sales fell to the lowest in 12 years and the jobless rate jumped to a two-year high of 5 percent in December.
Bush "hasn't made a decision yet as to whether he's going to propose an action," Paulson said, while reiterating the administration wants Congress to make previous tax cuts permanent. Bush said, "In a time of economic uncertainty, we don't need to be taking money out of your pocket."
Former Treasury Secretary Lawrence Summers and Harvard University's Martin Feldstein are among the economists saying a policy response, including tax cuts, is needed to avoid a recession. The last U.S. economic contraction occurred in 2001, Bush's first year in office.
Feldstein, head of the National Bureau of Economic Research and a member of the group that dates economic cycles, said Jan. 5 that there's a greater than 50 percent chance the economy will contract.
Paulson said he expected the economy would keep growing and suggested the administration wouldn't rush to Congress with a fiscal stimulus plan. "Working through the current situation and getting the policy right is more important than getting the policy announced quickly," he said.
"This economy is really quite resilient in the face of some pretty strong headwinds," Paulson said. At the same time, he added that "the consumer is facing some real challenges right now the housing downturn, energy prices, the unemployment numbers."
Paulson also said it's "encouraging" that banks are taking on the assets of units they set up to invest in high-yielding debt. The so-called structured investment vehicles suffered billions of dollars of losses after the market for securities linked to subprime mortgages collapsed.
The Treasury chief conceded that regulators should have paid more attention to structured investment vehicles, known as SIVs, whose losses contributed to the credit crunch. He said he and the heads of the regulators that make up the President's Working Group on Financial Markets are working on making the market more transparent.
"Complex and opaque financial instruments and structures, such as the use of conduits and SIVs, contributed" to the market turmoil, Paulson said. "We recognize the importance of addressing these policy issues, and we are."
The next few months may be difficult for financial markets and for consumers, Paulson indicated.
"It will take additional time for markets to regain confidence," Paulson said in his first speech of 2008. "We will likely have further indications of slower growth in the weeks and months ahead," the Treasury chief added, citing the "overhang" of unsold houses as the "biggest downside risk" facing the economy.
Neither Bush nor Paulson indicated what new steps they are considering. "The smartest thing we can do is to keep taxes low," Bush said.
Paulson said making permanent the tax reductions Bush implemented in 2001 and 2003 would "provide great relief" to investors. He acknowledged that it's unlikely he will be able to convince a Congress led by Democrats who campaigned on pledges to reverse some of Bush's tax policy to go along.
The speech was Paulson's first since a three-state trip last month to promote his plan to ease the subprime mortgage crisis, which includes freezing interest rates on loans to some borrowers. He said he expected mortgage servicers to "begin fast-tracking borrowers in the next few weeks."