Treasury Secretary Henry Paulson said on Tuesday he was confident the U.S. and global economies were resilient but welcomed an emergency rate cut by the Federal Reserve as a helpful move.
The U.S. central bank cut benchmark U.S. interest rates by a steep three-quarters of a percentage point while Paulson while still answering questions after addressing a Chamber of Commerce breakfast meeting.
Paulson had earlier acknowledged the U.S. economy has slowed “materially” in recent weeks but, despite a meltdown in global stock prices, insisted that the global economy had ”underlying resiliency” that would let it weather the storm.
The U.S. Treasury chief initially looked surprised when a Chamber of Commerce official said the Fed had just cut rates in a relatively rare move between meetings of its policy-setting Federal Open Market Committee, but praised the action.
“This is very constructive and I think it shows this country and the rest of the world that our central bank is nimble and can move quickly in response to market conditions,” Paulson said.
The U.S. Treasury chief, who headed Wall Street giant Goldman Sachs before taking over Treasury in 2006, said the $145-billion short-term stimulus package that President George W. Bush was asking Congress to work on was needed to minimize the impact of a U.S. economic slowdown.
“We need to do something now, because short-term risks are clearly to the downside, and the potential benefits of quick action to support our economy have become clear,” Paulson said.
But early signs were that Bush’s call for bipartisan action — and a relatively positive Congressional response to it — were not calming financial markets but might actually be fanning fears that the economy was at greater risk of toppling into recession than officially acknowledged.
Stock markets around the world sank sharply on Monday, when U.S. markets were closed for the holiday in observance of slain civil rights leader Martin Luther King’s birthday.
Paulson tried to reassure that there was reason to feel confident in the U.S. economy’s long-term prospects, notwithstanding severe problems in the housing sector and other credit-market strains.
“The U.S. economy is resilient and diverse,” he said. “It’s been remarkably robust and it will be again.”
He added: “The unemployment rate remains low and job creation continues, albeit at a modest pace. The structure of our economy is sound and our long term economic fundamentals are healthy.”