Jan. 22 — Treasury Secretary Henry Paulson said the Federal Reserve’s emergency interest-rate cut may boost investor confidence and called on Congress to “quickly enact” legislation to buttress U.S. growth.
As Paulson delivered a speech in Washington on the health of the U.S. economy, the Fed lowered its benchmark interest rate to 3.5 percent from 4.25 percent before a scheduled meeting on Jan. 29-30 to head off the threat of recession as global stock markets tumbled.
“What I think it shows to this country and the rest of the world is that our central bank is nimble and is able to move quickly to respond to market conditions,” Paulson said, when asked after the speech about the Fed’s decision. “That should be a confidence builder.”
Paulson’s speech to the U.S. Chamber of Commerce had been scheduled since Jan. 18. His remarks came after a two-day plunge in European and Asian stocks markets fueled by mounting concerns the U.S. is headed into a recession. President George W. Bush put the Treasury chief in charge of negotiating a stimulus package with the Democratic-majority Congress.
“We need to do something now, because the short-term risks are clearly to the downside,” Paulson said in the speech. “The legislation must be enacted quickly, and the elements of the legislation must have immediate impact. If we miss this, we miss the mark.”
He reiterated that the housing market in the U.S. is undergoing a “significant” correction and growth has slowed “materially in recent weeks.”
In the U.S., stocks fell. The Standard & Poor’s 500 Index was down 50.5, or 3.8 percent, to 1,274.7 at 9:37 a.m. in New York and the Dow Jones Industrial Average fell 450.7, or 3.7 percent, to 11,648.6. The S&P 500 index is down about 13 percent since the start of the year.
The MSCI World Index’s 3 percent decline yesterday, the steepest since 2002, left benchmarks in France, Mexico, Italy and 35 other countries at least 20 percent below their recent highs. Declines today turned Indonesia, India, the Philippines, Taiwan and Thailand into bear markets as well.
Paulson said he is “actively engaged with policy makers here and around the world” monitoring the stock market turmoil. He canceled a trip this week to the World Economic Forum in Davos, Switzerland, to help negotiate with lawmakers. Bush and Paulson last week called for passage of a package of as much as $150 billion in measures to counter escalating risks to an economic expansion now in its seventh year.
The U.S. unemployment rate in December climbed to 5 percent, the highest in two years, from 4.7 percent the previous month.
“The potential benefits of quick action to support our economy have become clear,” Paulson said. “So far we are engaged in a collaborative, bipartisan process that should result in a robust, broad-based, temporary growth plan.”