WASHINGTON — President Bush, Federal Reserve Chairman Ben Bernanke and congressional leaders on Thursday all blessed some form of fiscal stimulus to jump-start the sluggish U.S. economy and perhaps keep it out of recession.
Wall Street didn't seem to care, however, with all the major indices plunging for a third consecutive day on concerns that the economy may be near or already in a recession.
Turning to the economy after a Mideast trip, the White House confirmed that President Bush supports a stimulus plan because of "softness" in the economy. Bush, who'll outline his views Friday morning at the White House, held a conference call with congressional leaders from both parties Thursday to discuss ways to provide a jolt to the economy.
"He told them that he will call for an effective, temporary growth measure and he will lay out principles tomorrow (Friday) for what an effective approach would be and what would not be effective," said Tony Fratto, a White House spokesman. "He will describe the kinds of policy responses that would be effective."
After talking with the president, House Speaker Nancy Pelosi, D-Calif., appeared on the CNBC business cable channel and, without providing details, said that all parties had agreed that a stimulus must be timely, targeted to help the middle class and businesses and boost consumer confidence. She said a plan could pass Congress within 30 days.
"We decided we would continue to try to work together in a bipartisan way," Pelosi said.
Republicans and Democrats appear to agree on several measures, including extending unemployment benefits and expanding food-stamp programs to stimulate spending by those who are under the greatest strain from the economic slowdown.
"I think there is good evidence that cash that goes to low- to moderate-income (Americans) gets spent," Bernanke told the House Budget Committee on Thursday.
There's also general agreement on the need for tax credits to encourage businesses to increase spending and hiring, and for more aid to state and local governments to prevent them from raising taxes, which could slow economic activity further.
Bernanke told Congress that he welcomed a fiscal jolt but he cautioned that it must be felt quickly, should be temporary and shouldn't widen the federal budget deficit. He suggested a narrowly focused stimulus package that's separate from broader policy debates such as whether to make Bush's 2001 and 2003 tax cuts permanent.
"To be useful, a fiscal stimulus package should be implemented quickly . . . within the next 12 months or so," he said. "Stimulus that comes too late will not help support economy activity in the near term, and it could be actively destabilizing if it comes at a time when growth is already improving."
Bush aides confirmed that he won't seek to replace any revenue lost by the cost of the proposed stimulus. Democratic presidential candidates Sens. Hillary Clinton of New York and Barack Obama of Illinois have offered their own plans without budget cuts to pay for them. They argue that the boost to the economy in time will generate sufficient new tax revenues to pay for the plans.
Despite the support Thursday for a stimulus plan, the Dow Jones Industrial Average shed 306.95 points, or 2.46 percent, to close at 12,159.21 points. The S&P 500 fell 39.93 points to close at 1333.27, while the tech-heavy NASDAQ reeled, giving up 47.69 points to close at 2346.90.
Financial markets were looking past a short-term stimulus and focusing instead on investment bank Merrill Lynch's announcement that it took a $16.7 billion loss in the fourth quarter of 2007, driven in large part by housing market-related problems. Investors also were rattled by a dour report on the outlook for manufacturing from the Federal Reserve Bank of Philadelphia.
The sinking fortunes of the economy did bring one bright note for consumers. Oil prices fell on the New York Mercantile Exchange by 65 cents to settle at $90.19 on concerns that the demand for gasoline and other petroleum products will drop. If this dip in prices holds, it should mean cheaper gasoline.
Economists increasingly worry about recession, defined as two consecutive quarters of negative economic growth. It's virtually impossible to tell until after the fact that the economy is in recession, and that's why Bush and Congress are keen on measures to prevent it or at least shorten it.
"I think we're at a point where it feels like we're in a recession . . . the evidence strongly suggests we are at least in our second month" of negative growth, said Mark Zandi, the chief economist of forecaster Moody's Economy.com in West Chester, Pa. " . . . That's what has got policymakers motivated here."
Under questioning at a congressional hearing Thursday, Bernanke didn't mention recession.
The economy, he said, will "continue to grow, but growing at a notably slower" pace in the first half of this year.
He had no qualms about stimulus plans whose cost is estimated at $50 billion to $150 billion.
Even if Congress passes a plan quickly, there will be some inherent delays, the Fed chairman said. For example, he said, it could take the Internal Revenue Service two months or longer to issue one-time tax rebates such as those under consideration.
ON THE WEB
Read Bernanke's testimony.