Bush seeks to calm anxieties
At the end of a week filled with dire economic signals and the near collapse of a major Wall Street bank, President Bush on Friday sought to reassure Americans that the right policies were in place and it was only a matter of time before the economy would rebound “better and stronger than before.”
Stocks plunged as investors seemed to focus more on the liquidity crunch that nearly felled investment bank Bear Stearns Cos. than on the president’s calming message.
Bush’s speech in Manhattan came on the heels of an unlucky confluence of events Thursday: Gold prices reached $1,000 an ounce for the first time in history, oil prices hit a record $110 a barrel, and the dollar fell below 100 Japanese yen for the first time since 1995.
Also Thursday, a report showed that home prices in Southern California had plunged nearly 18% in February from the year-earlier level, for another unwelcome record.
The news didn’t improve much Friday, when the Federal Reserve Board and JPMorgan Chase & Co. scrambled to craft a rescue plan for Bear Stearns.
Later Friday, Reuters news service reported that because of the dollar’s swoon against the euro, the 15-nation Eurozone for the first time had overtaken the United States as the world’s largest economy.
The president, addressing the Economic Club of New York, conceded that the economy had hit a “rough patch” but said that the recently enacted package of tax rebates for households and investment incentives for businesses would soon have a positive effect.
Bush said the Fed has cut interest rates several times, and this week, the Fed announced a major move to ease stress in the credit markets by adding liquidity.
“It was strong action by the Fed, and they did so because some financial institutions that borrowed money to buy securities in the housing industry must now repair their balance sheets before they can make further loans,” the president said.
He also had kind words for his economic team. “Today’s events are fast moving, but the chairman of the Federal Reserve and the secretary of the Treasury are on top of them and will take the appropriate steps to promote stability in our markets,” Bush assured his audience.
More than $150 billion of tax rebate checks are scheduled to reach 130 million U.S. households in May, Bush said, adding that his economic advisors believed the money would boost consumer spending somewhat in the second quarter and would have “a greater effect in the third quarter.”
In the meantime, he said, “The challenge is not to do anything foolish.”
The president said he opposed “massive government intervention in the housing market” and criticized elements of a relief plan put forward this week by Democrats in Congress, including a proposal to relax bankruptcy laws in certain cases.
Fed Chairman Ben S. Bernanke on Friday urged lenders to consider writing down principal for distressed borrowers in an effort to limit foreclosures. It is a position that the Bush administration has not endorsed but that has been espoused by key Democrats.
Speaking for the Democrats on Friday, Sen. Edward M. Kennedy of Massachusetts said: “Immediate action is needed to help struggling families -- including an extension of unemployment benefits for those who can’t find work and genuine housing relief to end the tidal wave of foreclosures and help Americans keep their homes.”
Also Friday came a government report that inflation had held steady in February, clearing the way for what many economists expect will be a further lowering of interest rates by the Fed next week.
The Labor Department said the most widely watched measure of inflation, the consumer price index, was essentially flat last month after ticking upward in January. But economists said they didn’t expect the good news to last because all-time-high energy prices this month are likely to produce a significant increase in consumer prices in coming weeks and months.
“The pretty result for February top-line consumer prices will turn ugly in March as gasoline prices rise into record-setting territory,” said Kenneth Beauchemin, U.S. economist with Global Insight, an economic forecasting firm. “Food prices are [also] quite likely to continue their ascent. Acting in concert, these price hikes will deliver additional economic pain in the coming months.”
Consumers’ confidence in the economy has continued to erode, but not as rapidly as many economists predicted. The University of Michigan index of consumer sentiment dipped to 70.5 in early March, down slightly from 70.8 in late February. Economists polled by the Reuters news service, which co-sponsors the survey released Friday, had predicted a more dismal level of 69.
Still, consumers expect the level of inflation to get significantly worse in the next year as the economy continues its slide into recession, said Richard Curtain, director of the survey.
“There was nearly unanimous agreement among consumers that the economy was now in recession,” Curtain said.
The president, in his New York speech, warned against isolationist and protectionist impulses that sometimes arise during an economic downturn. For example, he said it would be a mistake to try to bar overseas investment in U.S. assets, even if it comes from so-called sovereign wealth funds amassed by Middle East oil powers.
Alluding to the fact that much of such funds’ investment capital comes from oil profits, Bush got a big laugh by quipping: “It’s our money to begin with. It seems like we ought to let it back.”
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maura.reynolds@latimes.com
Mulligan reported from New York and Reynolds from Washington.
