22 January 2008

Bush, Congressional Leaders Meet on Economic Stimulus Package

Federal Reserve cuts key lending rate to 3.5 percent

By Merle D. Kellerhals Jr.
Staff Writer

Washington –- President Bush and congressional leaders agree that a short-term, temporary set of economic measures is needed to stimulate the U.S. economy at a time of slowing growth.  They share a sense of urgency to get money into the economy quickly, Treasury Secretary Henry Paulson says.

"Specifically, the president called for a robust package that is large enough to have a real impact on our economy and will boost consumer spending and business investment this year," he said January 22 during a speech in Washington.  "The U.S. economy is resilient, [the] unemployment rate remains low, and job creation continues ... at a modest pace."

"The structure of our economy is sound, and our long-term economic fundamentals are healthy," Paulson said.

President Bush met with congressional leaders at the White House the same day and said he was optimistic an economic stimulus package can be developed quickly.  He said the package, which is based on 1 percent of the nation's gross domestic product, or about $140 billion to $145 billion, would make sure that the current uncertainty does not translate into greater economic woes.  The package, which still has to be worked out by Congress, would include tax rebates to consumers and incentives to businesses to stimulate spending and growth.

The U.S. Federal Reserve at the beginning of the day January 22 lowered the federal funds rate, which controls overnight lending between banks, to 3.5 percent -- its lowest level since September 2005.  The Federal Reserve also lowered the discount rate, which it charges on direct bank loans, to 4 percent.  Both measures are designed to loosen credit lending to consumers and businesses.

"The [Federal Open Market] Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth," the Federal Reserve announcement said.  "While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households."

Jason Furman, a senior fellow in economic studies at the Brookings Institution in Washington, said the plan proposed by the Bush administration to give the economy a fiscal stimulus is designed to be temporary, timely and targeted -– essential ingredients at a critical time.  It is also important that the president and congressional leaders are talking to each other and that they agree on the course that has been proposed.

Senate Majority Leader Harry Reid said before a meeting with the president and other congressional leaders that Congress could get the stimulus package to the president in about three weeks.  "We're going to have to get it done as quickly as possible," he said, recognizing that legislation can take some time to make its way through both houses of Congress.