Fears over economy fuel action

President Bush, center, flanked by House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, meets with Congressional leaders to discuss the economy Tuesday in the White House.

The Associated Press
Published: Wednesday, January 23, 2008 at 6:01 a.m.
Last Modified: Tuesday, January 22, 2008 at 11:58 p.m.

WASHINGTON - You know the economy is in big trouble when Democrats and Republicans start talking cooperation instead of confrontation.

Recession fears and an unnerving meltdown in global markets are forcing a burst of emergency action rarely seen in this slow-moving and politically divided capital.

The biggest surprise Tuesday came from the Federal Reserve, the nation's central bank, which slashed a key interest rate and hinted it would do it again, soon. That move helped avert an expected disaster on Wall Street following a stock selloff in Asia. Down 465 at one point, the Down Jones industrials ended the day off a moderate 128.

There was a surprise at the White House, too. The bitterness and name calling that have been the hallmark of relations between President Bush and the Democratic-led Congress were replaced by cordiality and cooperation. Lawmakers joined administration officials in negotiations on upwards of $150 billion in tax cuts and government spending to pump up the economy.

Senate Majority Leader Harry Reid said the goal was to get a deal through Congress and on Bush's desk within roughly three weeks. His Republican counterpart, Mitch McConnell of Kentucky, agreed the aim was action in the next few weeks and said, "That, by the standards in Congress, is pretty fast.''

Bush expressed confidence that he and the Democratic-led Congress could put aside sharp differences that have marked his presidency.

"I believe we can find common ground to get something done that's big enough, effective enough so that an economy that is inherently strong gets a boost - to make sure that this uncertainty doesn't translate into more economic woes for our workers and small business people,'' Bush said in the Cabinet Room.

The White House meeting was intended to show the world that Bush and his Democratic adversaries recognize the gravity of the economic slowdown and are serious about protecting consumers and investors who have watched their holdings shrink. Wall Street and global markets fear the stimulus package outlined by Bush is not enough to avert a recession. The Dow Jones industrial average is down nearly 10 percent since the beginning of the year - its worst first 14 trading days ever.

Administration officials are focusing on rebates of $800 to $1,600 for individuals and couples and so-called bonus depreciation to allow companies to deduct 50 percent of business investments made this year. Democrats say the package also should include boosts in unemployment benefits, food stamp payments and the Medicaid health care program for the poor and disabled. Talks between Pelosi and Minority Leader John Boehner, R-Ohio, have focused on smaller tax rebates of perhaps $500 for individuals.

"This is about one thing in this package: Is it a stimulus?'' Pelosi said "So whatever it is that we are considering, it must meet that one criterion: Does it stimulate the economy? Does it put money into the hands of those who will spend it?''

When the Democratic leaders were asked if they agreed with Bush's statement that the economy is inherently strong, Pelosi said, "I certainly hope so.''

Paulson went to Capitol Hill for talks on the ingredients of the economic package. "Time is of the essence and the president stands ready to work on a bipartisan basis to enact economic growth legislation as soon as possible,'' he said earlier.

The Fed's rate cut caught Washington by surprise. Federal Reserve Chairman Ben Bernanke and his colleagues approved the cut Monday night after global markets were slammed by rising concerns that weakness in the world's largest economy was spreading worldwide.

"The world's stock markets are in meltdown, so the Fed came in with an inter-meeting move to try to stop the panic,'' said Christopher Rupkey, senior economist at Bank of Tokyo-Mitsubishi.

The reduction in the federal funds rate from 4.25 percent to 3.5 percent marked the biggest reduction in this target rate for overnight loans on records going back to 1990.

It marked the first time the Fed has changed rates between meetings since 2001, when the central bank was battling the combined impacts of a recession and the terrorist attacks.

Commercial banks responded by announcing similar cuts of three-quarter of a percent in their prime lending rate, the benchmark for millions of business and consumer loans. The action will mean the prime lending rate will drop from 7.25 percent down to 6.50 percent.

Analysts said the fact that the Fed did not wait until its meeting next week to cut rates underscored the seriousness of the situation.

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