LadyMod at scam.com
09-08-2007, 09:21 AM
Bad News Puts Political Glare Onto Economy
By EDMUND L. ANDREWS
Published: September 8, 2007
WASHINGTON, Sept. 7 — For the first time in four years, economic concerns are rivaling the war in Iraq as a top issue on the political agenda.
Sensing new political momentum, Democrats in Congress and on the presidential campaign trail are stepping up their criticism of President Bush’s handling of the economy and offering their own proposals.
And now that the malaise in housing and credit markets appears to be infecting the wider economy, the Federal Reserve could feel more pressure from Democrats and Republicans alike than it has since Alan Greenspan, then the Fed chairman, incurred the wrath of President George H. W. Bush for not cutting rates faster in the early 1990s.
The Fed is all but certain to reduce interest rates at its next policy meeting on Sept. 18, but the big debate among economists is how much further and faster it cuts rates after that.
The Bush administration, on the defensive, rushed out with a message of calm reassurance, as a phalanx of top officials insisted that the economy remained poised for growth despite a government report that seemed to show that the broader economy is suffering from the mortgage meltdown.
“We’re still confident that we’re going to see high growth for next year,” said Edward P. Lazear, chairman of President Bush’s Council of Economic Advisers.
And Carlos M. Gutierrez, secretary of commerce, warned that the prospect of tax increases would merely increase economic uncertainty.
On Friday, a top House Democrat announced his intention to push for a sweeping revision of President Bush’s tax cuts that would favor middle-income families at the expense of the rich.
“It will be the mother of all tax reforms,” vowed Representative Charles B. Rangel, Democrat of New York who is chairman of the House Ways and Means Committee.
Other Democrats are criticizing President Bush’s economic policies and pushing for more help for low-income people who face foreclosures after buying their houses with subprime mortgages, an expansion of government-financed health care and more money for education.
But perhaps the most important participant in the drama — the Federal Reserve — remained silent on Friday and will probably continue to say nothing until its next policy meeting in 11 days.
Ben S. Bernanke, the Fed chairman, has signaled his readiness to reduce a key interest rate, the overnight rate for loans between banks, if the turmoil in the mortgage markets threatens to derail economic growth.
But Fed officials still have lingering worries about the risk of rising inflation, and they do not want the central bank to be seen as rescuing investors and lenders from bad bets on mortgage-backed securities.
Typically, the Fed raises interest rates to ward off inflation when the economy is growing fast and in danger of overheating, and lowers rates when the economy is slackening.
Fed officials and politicians alike know that decisions about monetary policy right now are likely to affect the broader economy about the time of the presidential elections in November 2008, because changes in interest rates usually take effect after a lag of 12 to 18 months.
But the political repercussions could be greater than in many years. For the last decade, the Fed has given politicians little to criticize: it has either spurred faster growth with low interest rates or raised rates modestly amid fast growth and low unemployment.
Now the central bank is in a less comfortable position. Even as Wall Street analysts ratchet up their worries about a recession, Fed officials are far from convinced that a true downturn is likely. At the same time, many officials still have lingering worries about higher inflation.
Republican and Democratic presidential candidates all jumped on the weak job numbers to make political points.
“It does not surprise me that there’s been some adjustment there,” said Fred D. Thompson, who officially declared his candidacy for the Republican nomination this week, while campaigning in Iowa. “Unemployment is at a level that used to be considered full employment in this country. Nothing is sustainable forever. Things ebb and flow.”
Democratic candidates used the first monthly decline in employment in four years to attack Mr. Bush. Senator Barack Obama of Illinois said Mr. Bush’s economic policies demonstrated his “failure to lead.”
Senator Hillary Rodham Clinton of New York said the jobs data proved the administration’s strategy was “not working for working Americans.”
John Edwards, the former senator from North Carolina, said Mr. Bush’s support for globalization had “accelerated the winnings of the winners.”
But for Mr. Bernanke, who has to make the most immediate decisions, the new employment numbers are unlikely to have settled the issue. Fed officials were almost certainly taken aback by the drop in jobs last month. Wall Street forecasters had predicted an increase of about 100,000 jobs, though many had trimmed back their forecasts in recent days.
Instead, the Labor Department estimated that the nation actually lost 4,000 jobs in August, and it reduced its estimate of the jobs created in June and July. The average monthly pace of job creation dropped to only 32,000 jobs in the most recent two months from 139,000 jobs in the second quarter of this year.
Fed officials had been awaiting the August jobs report, viewing it as the last major statistical indicator they would get before their policy meeting on Sept. 18.
But the report probably did not convince all policy makers that a recession is likely. Much of the recent decline in job creation came in construction and the downturn in housing, which had already been expected. And some of the decline stemmed from a decline in government jobs, which are not tied to the economic cycle.
“He needs to mollify the markets and Congress,” Bernard Baumohl, managing director of the Economic Outlook Group, said of Mr. Bernanke.
“But it’s important to remember that Bernanke has said, over and over again, that the best way to ensure economic growth is to anchor inflation expectations. He knows we still have a low unemployment rate, that industrial capacity is still tight. If he’s going to reduce interest rates substantially, he’ll be increasing inflation expectations.”
Susan Saulny contributed reporting from Sioux City, Iowa, and Karen James from New York.
By EDMUND L. ANDREWS
Published: September 8, 2007
WASHINGTON, Sept. 7 — For the first time in four years, economic concerns are rivaling the war in Iraq as a top issue on the political agenda.
Sensing new political momentum, Democrats in Congress and on the presidential campaign trail are stepping up their criticism of President Bush’s handling of the economy and offering their own proposals.
And now that the malaise in housing and credit markets appears to be infecting the wider economy, the Federal Reserve could feel more pressure from Democrats and Republicans alike than it has since Alan Greenspan, then the Fed chairman, incurred the wrath of President George H. W. Bush for not cutting rates faster in the early 1990s.
The Fed is all but certain to reduce interest rates at its next policy meeting on Sept. 18, but the big debate among economists is how much further and faster it cuts rates after that.
The Bush administration, on the defensive, rushed out with a message of calm reassurance, as a phalanx of top officials insisted that the economy remained poised for growth despite a government report that seemed to show that the broader economy is suffering from the mortgage meltdown.
“We’re still confident that we’re going to see high growth for next year,” said Edward P. Lazear, chairman of President Bush’s Council of Economic Advisers.
And Carlos M. Gutierrez, secretary of commerce, warned that the prospect of tax increases would merely increase economic uncertainty.
On Friday, a top House Democrat announced his intention to push for a sweeping revision of President Bush’s tax cuts that would favor middle-income families at the expense of the rich.
“It will be the mother of all tax reforms,” vowed Representative Charles B. Rangel, Democrat of New York who is chairman of the House Ways and Means Committee.
Other Democrats are criticizing President Bush’s economic policies and pushing for more help for low-income people who face foreclosures after buying their houses with subprime mortgages, an expansion of government-financed health care and more money for education.
But perhaps the most important participant in the drama — the Federal Reserve — remained silent on Friday and will probably continue to say nothing until its next policy meeting in 11 days.
Ben S. Bernanke, the Fed chairman, has signaled his readiness to reduce a key interest rate, the overnight rate for loans between banks, if the turmoil in the mortgage markets threatens to derail economic growth.
But Fed officials still have lingering worries about the risk of rising inflation, and they do not want the central bank to be seen as rescuing investors and lenders from bad bets on mortgage-backed securities.
Typically, the Fed raises interest rates to ward off inflation when the economy is growing fast and in danger of overheating, and lowers rates when the economy is slackening.
Fed officials and politicians alike know that decisions about monetary policy right now are likely to affect the broader economy about the time of the presidential elections in November 2008, because changes in interest rates usually take effect after a lag of 12 to 18 months.
But the political repercussions could be greater than in many years. For the last decade, the Fed has given politicians little to criticize: it has either spurred faster growth with low interest rates or raised rates modestly amid fast growth and low unemployment.
Now the central bank is in a less comfortable position. Even as Wall Street analysts ratchet up their worries about a recession, Fed officials are far from convinced that a true downturn is likely. At the same time, many officials still have lingering worries about higher inflation.
Republican and Democratic presidential candidates all jumped on the weak job numbers to make political points.
“It does not surprise me that there’s been some adjustment there,” said Fred D. Thompson, who officially declared his candidacy for the Republican nomination this week, while campaigning in Iowa. “Unemployment is at a level that used to be considered full employment in this country. Nothing is sustainable forever. Things ebb and flow.”
Democratic candidates used the first monthly decline in employment in four years to attack Mr. Bush. Senator Barack Obama of Illinois said Mr. Bush’s economic policies demonstrated his “failure to lead.”
Senator Hillary Rodham Clinton of New York said the jobs data proved the administration’s strategy was “not working for working Americans.”
John Edwards, the former senator from North Carolina, said Mr. Bush’s support for globalization had “accelerated the winnings of the winners.”
But for Mr. Bernanke, who has to make the most immediate decisions, the new employment numbers are unlikely to have settled the issue. Fed officials were almost certainly taken aback by the drop in jobs last month. Wall Street forecasters had predicted an increase of about 100,000 jobs, though many had trimmed back their forecasts in recent days.
Instead, the Labor Department estimated that the nation actually lost 4,000 jobs in August, and it reduced its estimate of the jobs created in June and July. The average monthly pace of job creation dropped to only 32,000 jobs in the most recent two months from 139,000 jobs in the second quarter of this year.
Fed officials had been awaiting the August jobs report, viewing it as the last major statistical indicator they would get before their policy meeting on Sept. 18.
But the report probably did not convince all policy makers that a recession is likely. Much of the recent decline in job creation came in construction and the downturn in housing, which had already been expected. And some of the decline stemmed from a decline in government jobs, which are not tied to the economic cycle.
“He needs to mollify the markets and Congress,” Bernard Baumohl, managing director of the Economic Outlook Group, said of Mr. Bernanke.
“But it’s important to remember that Bernanke has said, over and over again, that the best way to ensure economic growth is to anchor inflation expectations. He knows we still have a low unemployment rate, that industrial capacity is still tight. If he’s going to reduce interest rates substantially, he’ll be increasing inflation expectations.”
Susan Saulny contributed reporting from Sioux City, Iowa, and Karen James from New York.