T
Taylor
Guest
Paulson, Bernanke: No recession in '08
Treasury secretary and Fed chairman say rate cuts and rebates should keep
economy out of downturn.
NEW YORK (CNNMoney.com) -- Federal Reserve Chairman Ben Bernanke and
Treasury Secretary Hank Paulson both acknowledged problems in the U.S.
economy Thursday, but both said they believe the nation will avoid falling
into recession.
However, the two added at a hearing before the Senate Banking Committee that
official 2008 growth forecasts made late last year by the central bank and
the president's Council of Economic Advisors are likely to be lowered in the
coming months.
The Fed is currently predicting 1.8% growth for this year but Bernanke said
a new forecast would be finalized next week. The Council of Economic
Advisors' most recent estimate was for the economy to grow by 2.7% in 2008.
In their prepared testimony, the head of the central bank and the Bush
administration's point man on the economy said steps taken already this year
will be able to keep the economy moving forward despite the continued
downturn in housing and troubles in credit markets.
"At present, 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," said Bernanke
in his opening statement, referring to a series of Fed interest rate cuts
and a $170 billion tax rebate and stimulus plan signed by President Bush
Wednesday.
But Bernanke conceded that banks are getting tighter in their lending
standards, the housing and home building markets are likely to weaken
further and the labor market may be softening.
"More-expensive and less-available credit seems likely to continue to be a
source of restraint on economic growth," he said.
The Fed last month made two deep rate cuts: three-quarters of a percentage
point at an emergency meeting, followed by half a point eight days later.
Bernanke said Thursday that the Federal Open Market Committee, its
rate-setting body, was ready to act again if further economic readings
justify it.
"The FOMC will be carefully evaluating incoming information bearing on the
economic outlook and will act in a timely manner as needed to support growth
and to provide adequate insurance against downside risks," Bernanke said.
Economy is 'fundamentally strong'
Paulson echoed frequent comments he's made in recent weeks that he expects
slower growth but no recession, even with the problems faced by the economy.
"The U.S. economy is fundamentally strong, diverse and resilient, yet after
years of unsustainable home price appreciation, our economy is undergoing a
significant and necessary housing correction," he said. "The housing
correction, high energy prices and capital market turmoil are weighing on
current economic growth."
A number of closely watched economic readings in recent weeks, including the
January jobs report and the reading on business activity in the service
sector, have convinced a growing number of economists that the economy is
already in recession.
Bernanke repeated recent Fed statements that there are risks to the
economy -- including the "possibilities that the housing market or the labor
market may deteriorate to an extent beyond that currently anticipated, or
that credit conditions may tighten substantially further."
Investors didn't seem to like the cautious comments from Bernanke and
Paulson. After three straight days of gains for the Dow and S&P, stocks sold
off Thursday morning.
Bernanke: More bank losses but no failures
The Fed chairman also said that major banks and Wall Street firms are likely
to report more losses from investments tied to subprime mortgages
But Bernanke added that he's not worried about bank failures because he
thinks banks entered the current downturn with sufficient capital and have
been able to raise additional funds.
"Certainly all the banks we supervise remain at strong capital positions and
we don't see any imminent risk of any insolvency."
Senate Banking Chairman Christopher Dodd, D-Conn., opened the hearing by
saying that the economy was at the greatest risk of any time since the Sept.
11 terrorist attacks. He said further steps need to be taken, adding that
the slowdown is due to a crisis of confidence among both consumers and
investors.
Dodd was critical of some of the Bush administration's housing efforts,
including the freeze on foreclosures announced this week by Paulson and some
of the country's leading mortgage lenders.
"It is a lifeline more to lenders than to borrowers in my view," said Dodd.
Sen. Richard Shelby of Alabama, the ranking Republican on the committee,
also said he's concerned about the state of the economy and pointed out that
surveys show economists believe the chance of a recession now stands at
close to 50-50.
"One thing that is now clear to all of us is the subprime mortgage problems
are not contained," said Shelby.
Shelby said he had doubts whether the stimulus package would prove to be
effective.
"Even if every consumer spends their $600 tax rebate, I've equated it to
pouring a glass a water in the ocean and expecting it to make a difference,"
Shelby said. "I hope I'm wrong."
Paulson on the defensive
There were also some testy exchanges during the hearing. Sen. Robert
Menendez, D-NJ, pointed out that Paulson's former firm, Goldman Sachs (GS,
Fortune 500), is one of the growing number of investment banks forecasting a
recession this year.
"When the economy is at risk we expect all of you to sound the alarm.
Instead you hit the snooze button," Menendez said.
Menendez said he wasn't trying to talk down the economy, but that he was
looking for "honest assessments" from Paulson.
Paulson bristled at the comments, telling Menendez, "If you're trying to
talk the economy up, I'd hate to see you talk it down."
Menendez shot back, "I'm just trying not to hide my head in the sand."
"I'm not either," responded the Treasury Secretary.
http://money.cnn.com/2008/02/14/news/economy/bernanke_paulson/index.htm?eref=rss_topstories
Treasury secretary and Fed chairman say rate cuts and rebates should keep
economy out of downturn.
NEW YORK (CNNMoney.com) -- Federal Reserve Chairman Ben Bernanke and
Treasury Secretary Hank Paulson both acknowledged problems in the U.S.
economy Thursday, but both said they believe the nation will avoid falling
into recession.
However, the two added at a hearing before the Senate Banking Committee that
official 2008 growth forecasts made late last year by the central bank and
the president's Council of Economic Advisors are likely to be lowered in the
coming months.
The Fed is currently predicting 1.8% growth for this year but Bernanke said
a new forecast would be finalized next week. The Council of Economic
Advisors' most recent estimate was for the economy to grow by 2.7% in 2008.
In their prepared testimony, the head of the central bank and the Bush
administration's point man on the economy said steps taken already this year
will be able to keep the economy moving forward despite the continued
downturn in housing and troubles in credit markets.
"At present, 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," said Bernanke
in his opening statement, referring to a series of Fed interest rate cuts
and a $170 billion tax rebate and stimulus plan signed by President Bush
Wednesday.
But Bernanke conceded that banks are getting tighter in their lending
standards, the housing and home building markets are likely to weaken
further and the labor market may be softening.
"More-expensive and less-available credit seems likely to continue to be a
source of restraint on economic growth," he said.
The Fed last month made two deep rate cuts: three-quarters of a percentage
point at an emergency meeting, followed by half a point eight days later.
Bernanke said Thursday that the Federal Open Market Committee, its
rate-setting body, was ready to act again if further economic readings
justify it.
"The FOMC will be carefully evaluating incoming information bearing on the
economic outlook and will act in a timely manner as needed to support growth
and to provide adequate insurance against downside risks," Bernanke said.
Economy is 'fundamentally strong'
Paulson echoed frequent comments he's made in recent weeks that he expects
slower growth but no recession, even with the problems faced by the economy.
"The U.S. economy is fundamentally strong, diverse and resilient, yet after
years of unsustainable home price appreciation, our economy is undergoing a
significant and necessary housing correction," he said. "The housing
correction, high energy prices and capital market turmoil are weighing on
current economic growth."
A number of closely watched economic readings in recent weeks, including the
January jobs report and the reading on business activity in the service
sector, have convinced a growing number of economists that the economy is
already in recession.
Bernanke repeated recent Fed statements that there are risks to the
economy -- including the "possibilities that the housing market or the labor
market may deteriorate to an extent beyond that currently anticipated, or
that credit conditions may tighten substantially further."
Investors didn't seem to like the cautious comments from Bernanke and
Paulson. After three straight days of gains for the Dow and S&P, stocks sold
off Thursday morning.
Bernanke: More bank losses but no failures
The Fed chairman also said that major banks and Wall Street firms are likely
to report more losses from investments tied to subprime mortgages
But Bernanke added that he's not worried about bank failures because he
thinks banks entered the current downturn with sufficient capital and have
been able to raise additional funds.
"Certainly all the banks we supervise remain at strong capital positions and
we don't see any imminent risk of any insolvency."
Senate Banking Chairman Christopher Dodd, D-Conn., opened the hearing by
saying that the economy was at the greatest risk of any time since the Sept.
11 terrorist attacks. He said further steps need to be taken, adding that
the slowdown is due to a crisis of confidence among both consumers and
investors.
Dodd was critical of some of the Bush administration's housing efforts,
including the freeze on foreclosures announced this week by Paulson and some
of the country's leading mortgage lenders.
"It is a lifeline more to lenders than to borrowers in my view," said Dodd.
Sen. Richard Shelby of Alabama, the ranking Republican on the committee,
also said he's concerned about the state of the economy and pointed out that
surveys show economists believe the chance of a recession now stands at
close to 50-50.
"One thing that is now clear to all of us is the subprime mortgage problems
are not contained," said Shelby.
Shelby said he had doubts whether the stimulus package would prove to be
effective.
"Even if every consumer spends their $600 tax rebate, I've equated it to
pouring a glass a water in the ocean and expecting it to make a difference,"
Shelby said. "I hope I'm wrong."
Paulson on the defensive
There were also some testy exchanges during the hearing. Sen. Robert
Menendez, D-NJ, pointed out that Paulson's former firm, Goldman Sachs (GS,
Fortune 500), is one of the growing number of investment banks forecasting a
recession this year.
"When the economy is at risk we expect all of you to sound the alarm.
Instead you hit the snooze button," Menendez said.
Menendez said he wasn't trying to talk down the economy, but that he was
looking for "honest assessments" from Paulson.
Paulson bristled at the comments, telling Menendez, "If you're trying to
talk the economy up, I'd hate to see you talk it down."
Menendez shot back, "I'm just trying not to hide my head in the sand."
"I'm not either," responded the Treasury Secretary.
http://money.cnn.com/2008/02/14/news/economy/bernanke_paulson/index.htm?eref=rss_topstories