Greenspan Urges Congressional Restraint

Federal Reserve Chairman Alan Greenspan on Tuesday urged a Congress eager for economic relief to wait until current first-aid efforts have a chance to work before authorizing another dose of financial help.

If Congress acts, he said, it should fashion its tax and spending package to be temporary rather than permanent--and large enough and soon enough to offset the impact of the terror attacks Sept. 11 on New York and the Pentagon.

Greenspan met privately with Senate Finance Committee members Tuesday as efforts advanced in Congress to assemble a new stimulus package of as much as $100 billion.

Evidence supporting further action came from the Conference Board, a New York business group, which reported that its measure of consumer confidence plunged this month to a five-year low. The decline was the steepest since the run-up to the Persian Gulf War in 1990.

Tuesday’s report on consumer confidence was particularly troublesome because robust consumer spending was largely responsible for keeping the sagging economy from slipping into recession before the terrorist attacks.

Stock prices advanced for the second straight day Tuesday after suffering huge declines the week before. The Dow Jones industrial average gained 56 points on top of Monday’s 368-point gain. The Dow ended Tuesday at 8,659.97, down from 9,605.51 on the day before the terrorists struck.

As key members of Congress tried to refine their plans for a possible stimulus package, airport executives joined the growing list of business groups seeking federal financial aid.

Economic stimulus proposals circulating in Congress ranged across the political spectrum, from payroll tax relief to reductions in the tax rates for capital gains and corporate income. House Majority Leader Dick Armey (R-Texas) predicted Congress will approve some kind of stimulus package before the end of the year to supplement the tax cut and interest rate reductions already in place.

Members of the Senate Finance Committee consulted with Greenspan and former Treasury Secretary Robert Rubin on the best way to boost the economy with additional tax cuts.

Finance Committee Chairman Max Baucus (D-Mont.) summarized Greenspan’s closed-door advice in these words: “If we do something, do it now, and make it big.”

Aides said a package of as much as $100 billion was discussed, or roughly 1% of the nation’s $10-trillion economy. A stimulus package would need to be in that range to have the intended effect, the senators were told.

Participants said Greenspan and Rubin encouraged lawmakers to wait until more data are available to assess the forces at work in the economy before deciding to pour on more fiscal fuel.

So far this year, the Fed has cut interest rates eight times and Congress has approved more than $90 billion in stimulative tax and spending measures in an effort to revive the economy and respond to the attacks. They include $38 billion in income tax rebates, $15 billion to rescue ailing airlines and $40 billion in other emergency spending related to the attacks.

Greenspan has expressed concern that additional tax cuts could do more harm than good by undermining the government’s ability to use future budget surpluses to pay off some of the national debt.

The expectation of reduced federal borrowing has caused long-term interest rates to fall, creating a boom in home sales and encouraging consumers to keep spending. If another round of tax reductions causes long-term rates to begin rising, it could knock out one of the economy’s last remaining supports, Greenspan has warned.

Baucus and Sen. Charles Grassley (R-Iowa), the panel’s senior Republican, said they agreed with Greenspan that Congress should refrain from acting until more information is available.

Senate Majority Leader Tom Daschle (D-S.D.) said he also believes Congress should proceed with caution. “What most people are suggesting right now is that we take a very careful look before we make any further decisions with regard to economic stimulus,” Daschle said.

But as evidence of the economy’s problems has mounted, so, too, has the pressure on lawmakers to do more to try to spark a recovery. “We just had a shock wave go through the economy that causes us to wake up and say, ‘Oh, my goodness, things are worse than we thought,’ ” Armey said.

Although several recent indicators have pointed downward, there have been signs of remaining strength in the economy.

The National Assn. of Realtors reported Tuesday that sales of existing homes rose to a record annual rate of 5.5 million in August, a 5.8% increase. In the Western region, which includes California, sales jumped 9.8% to an annual rate of 1.46 million.

The association warned, however, that sales have probably declined in the aftermath of the terrorist attacks, and that a recession appears increasingly likely.

Meanwhile, airport executives appeared before a congressional panel to request federal assistance to help them recover from the aftershocks of the attacks.

David Z. Plavin, president of the Airports Council International-North America, told the House aviation subcommittee that the Bush administration and Congress “should be prepared to provide much-needed financial assistance to airports whose operations are endangered as a result of the terrorist attacks.”

He said a dramatic drop in passenger traffic and increasing security costs have taken a financial toll on airports. Los Angeles International Airport has been losing $1.8 million a day since Sept. 11, he said.

A lobbyist for the city of Los Angeles distributed copies of a letter from Mayor James K. Hahn to President Bush seeking “economic relief for airports, including low-interest loans to help with cash flow, bond debt guarantees for large existing debts, and grants for the federally mandated increased security measures.”

Democratic members of Congress stepped up efforts Tuesday to win passage of a $3.8-billion bill to aid the more than 100,000 airline and aerospace workers laid off in the last two weeks. Lawmakers are seeking to extend unemployment benefits and other assistance to employees of airlines, airplane manufacturers and airports.

Daschle and House Minority Leader Richard A. Gephardt (D-Mo.) met Tuesday with Bush at the White House and urged him to support aid for displaced workers as part of an aviation security measure expected to come before Congress next week.

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Staff writer Janet Hook contributed to this report.