RENEE MONTAGNE, host:
This is MORNING EDITION from NPR News. Good morning, I'm Renee Montagne.
STEVE INSKEEP, host:
And I'm Steve Inskeep.
Pressure is building on the Bush administration to avoid a recession if it can. The chairman of the Federal Reserve is already saying he's ready to act. He's giving a strong signal that the Fed is ready to cut interest rates again soon. Ben Bernanke gave that signal in a speech in which he outlined growing risks to the economy; oil prices are up, so is unemployment, and manufacturing is declining.
NPR's Jim Zarroli has more.
JIM ZARROLI: It was about as unequivocal as a Fed chairman can be. Bernanke warned that things could change quickly, but at this point he said energy costs, falling house prices and a wobbly stock market look like they're going to take a toll on consumer spending. Bernanke spoke during a question and answer session after a speech to two finance groups.
Mr. BEN BERNANKE (Federal Reserve Chairman): The Federal Reserve is not currently forecasting a recession. We are forecasting slow growth. There are downside risks, and therefore it's very important for us to stand ready to take substantive action to address those risks and provide some insurance against those negative outcomes.
ZARROLI: In Fed-speak, insurance means cutting interest rates again, making money more available, and prodding the economy forward.
That a rate cut is coming didn't take anyone by surprise, but the tone and timing of Bernanke's remarks suggested he's ready to get aggressive. Economist Mark Zandi said Bernanke's assurances were unambiguous.
Mr. MARK ZANDI (Chief Economist, Moodyseconomy.com): So I think it's very, very important to not only lower rates, but to send a strong signal that, yeah, we understand that this economy is very fragile, could slip away, and we're going to do whatever is necessary to make sure that it doesn't happen.
ZARROLI: But after last Friday's weak employment report and bad news on the manufacturing front, there's a growing sense among economists that interest rate cuts aren't enough. The Bush administration is said to be considering a series of steps to stimulate growth.
The Brookings Institution yesterday hosted a forum to talk about what kinds of steps can be taken. Among those participating was Martin Feldstein, former head of the Council of Economic Advisers under President Reagan. Feldstein said he wasn't sure the economy is in a recession yet, but the country needs to do what it can to get ahead of the problem.
Professor MARTIN FELDSTEIN (Harvard University): I think we're all here because we are concerned that the U.S. economy could slip into a recession and that the recession could be a long, deep, severe one.
ZARROLI: The steps that the Bush administration is said to be considering include a package of tax cuts and rebates that would give consumer spending a bump up. The question is how to design a stimulus package that would work quickly enough and not get mired down in Washington's partisan warfare.
Brookings' Doug Elmendorf noted that some Republicans may try to tie the stimulus package to efforts to make the Bush tax cuts permanent. Whatever the merits of such a move, he said, it wouldn't do much to address the risks of a recession this year.
Mr. DOUG ELMENDORF (Brookings Institution): Making the 2001 and 2003 tax cuts permanent would hardly provide a timely boost because they will take effect several years from now.
ZARROLI: Likewise, former Treasury Secretary Robert Rubin said the economy faces big long-term problems with a budget deficit and infrastructure investment. But they aren't going to be solved overnight. Rubin said it was important not to let the discussion about a stimulus package get sidetracked. But he also told Feldstein he doubted that could get done in the political stalemate that is Washington.
Mr. ROBERT RUBIN (Former U.S. Treasury Secretary): Seems like the political system (unintelligible) is kind of mired or bogged down or - for whatever set of reasons. I have great respect for many of the people involved in that system, but it doesn't seem to be able to move forward.
ZARROLI: Still, there's a building concern that Washington needs to address the slowdown, and soon. Among the proposals reportedly being weighed by the administration is an idea to make any new tax cuts conditional. Congress could approve them now, but they would only be triggered if the economy declined by a certain amount; if, for instance, job growth turned negative for three months.
Proponents say that would appease people worried about inflation, but also send a message to consumers that the government can intervene quickly if things get much worse.
Jim Zarroli, NPR News, Washington.
INSKEEP: And you can find out which proposals are in the mix for stimulating the economy by going to npr.org.