The worst of the credit crisis may have passed, Treasury Secretary Henry Paulson said Wednesday, while acknowledging that rising gas prices will blunt the effect of 130 million economic stimulus checks. He ruled out a second stimulus package for now.
In an interview with The Associated Press, Paulson said that the turmoil that has gripped Wall Street and took a turn for the worse again in March has eased somewhat. "There's progress," he said. "I think we're closer to the end of this than the beginning."
A prolonged housing slump, a severe credit crisis and soaring energy costs have pushed the economy to the edge of a recession. To help cushion the blow, the Bush administration and Congress speedily enacted a $168 billion stimulus package of tax rebates for people and tax breaks for businesses.
With oil surging to record levels above $123 per barrel and gasoline prices hovering around all-time highs of $3.62 per gallon, Paulson acknowledged that the high price people are paying at the pump would diminish the impact of the stimulus payments that are designed to give the economy a jump-start.
"Obviously, the high price of gasoline is unwelcome and is a challenge and is a headwind," he said.
The first batch of rebate payments started hitting bank accounts last week through direct deposits. Paulson, Vice President Dick Cheney and other Bush administration officials head to government check printing centers around the country on Thursday for events highlighting the fact that millions of rebate checks are going in the mail.
"We will get some help from the stimulus," Paulson said in the interview. "Later this year, I expect growth will pick up." Still, he acknowledged that the country was facing "tough times" as people struggle with soaring gasoline prices, higher medical costs and a weak jobs market.
Paulson said the steep slump in housing, which has depressed home sales and prices, remained "the biggest risk to the economy." But he said he believed that the steep turmoil that began last August in credit markets has calmed since mid-March when the crisis claimed its largest victim with the forced-sale of Bear Stearns, the nation's fifth largest investment firm, to JP Morgan Chase & Co.
But even though the markets are "somewhat calmer now," Paulson said large portions of the credit markets — ranging from mortgages to student loans to loans that banks make to each other — still are not functioning in a normal way. While he said progress was being made, "I wouldn't be surprised at all to see more bumps in the road."