January 22, 2008
Econ Watch: The 'Uh-Oh' Heard 'Round The World
UPDATED.
President Bush sought to assure investors and consumers that a relief package was on the way, though he made no promises about when.
"I believe we can find common ground to get something done," he said, flanked by House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid. They were joined by Bush's economic team at the White House for a briefing on Bush's recent trip to the Middle East as well as a discussion of the $150 billion stimulus package the president proposed on Friday.
"The economy is inherently strong, but it needs to get a boost. We need to make sure this uncertainty doesn't translate into more economic woes for our workers and businesspeople," Bush said.
Bush was discussing the nation's economy with opposition leaders in Congress on a day of dizzying volatility in the U.S. and global markets. This morning, the Federal Reserve Board made its first emergency rate cut since shortly after the 9/11 attacks, voting to slash its benchmark interest rate by 75 basis points to 3.5 percent. The move was meant to provide immediate relief for debtors in an economy seized by a two-fer liquidity and credit drought.
The surprise announcement came one week before the Fed's regularly scheduled meeting, at which it was expected to further nick at rates by 50 basis points. The move did nothing, initially, to mitigate fears that the U.S. economic slowdown is having a tsunami effect on global markets. The Dow plummeted more than 460 points soon after the opening bell.
But the emergency cut was also a signal that the Fed stands at the ready to react aggressively to the economy's downturn. By noon the sell-off had slowed, and the Dow mostly recovered to close down 128 points, or 1.1 percent.
Now that the Fed seems to be actively engaged in fighting off a recession, many eyes are on Washington to do its part. "Everybody wants to get something done quickly," Bush acknowledged. "We want to make sure this gets done right."
The president continued to caution against impatience. "Legislative bodies don't move in a necessarily quick way. When we say 'as soon as possible,' that means obviously within the ability for these bodies to effectively do their jobs," he added. Bush said that though he couldn't promise a timeline, he was confident that he and Congress could work out a legislative deal. Following the meeting, Reid told reporters that Democrats would aim to get a package out before the President's Day recess, less than four weeks from now.
In a statement explaining its decision to get a jump on its scheduled meeting, the Federal Open Market Committee said, "The committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth." Repeating Chairman Ben Bernanke's assertion last week that inflation risks would level out, the committee continued, "Incoming information indicates a deepening of the housing contraction as well as some softening in labor markets."
Without using the R-word, the committee acknowledged that strong indicators of a growth slowdown will continue to plague markets. "The committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks," the statement said.
Preceding today's domestic plunge was a massive sell-off in Asian and European markets. In India, trading was halted for an hour after markets tanked 11 percent after opening. Stocks there fell a further 12.9 percent upon reopening, and recovered to close at 4.97 percent.
In the U.K., the FTSE 100 closed more than 323 points down yesterday, a fall-off replicated across European markets. The Fed's rate cut today heartened investors there, who helped boost the FTSE to a late 162-point rally. Global investors were keenly awaiting the morning bell on Wall Street this morning, as U.S. markets were dark yesterday for the Martin Luther King Jr. holiday. But if U.S. markets continue to treat the Fed cut cynically, and keep expectations low for federal stimulus measures, that will likely inform the worldwide sell-off.
(See the London Telegraph's nifty graphs tracking the ups and downs of the Dow, FTSE and Sterling vs. Dollar since the 9/11 attacks.)
With the Senate out of session until today, lawmakers are already precious weeks behind in delivering a legislative emollient for the economy. Partisan bickering over tax rebates and targeted spending (subscription) is expected. All parties realize, however, that speedy delivery of a stimulus package is crucial to consumers' and investors' mood in the weeks and months ahead.
Treasury Secretary Henry Paulson emphasized in an address to the U.S. Chamber of Commerce this morning that Congress and the administration should act fast on the stimulus package. Though he and Bernanke called for a legislative package to stem the U.S. economic growth slowdown, signaling that relief was on the way, investors remained spooked on Friday.
Today's plunge may indicate that investors believe the Fed is doing too little, too late. It could also be a sign that Wall Street now fears that the forthcoming stimulus package won't be enough stop the global ripple effects of the U.S. mortgage crash.
Posted at 5:02 PM
Posted to:
Asia, Ben Bernanke, Bush Administration, Congress, Economy, Europe, Federal Reserve, President Bush
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