Fed's hands are full fighting recession, inflation

John W. Schoen Senior producer • Profile • E-mail

Both the White House and the Federal Reserve Chairman Ben Bernanke this week repeated their official forecasts that the U.S. economy should be able to dodge a recession this year — if all goes well. But as Bernanke outlined in back-to-back appearances before House and Senate committees, the list of “ifs” is getting longer.

Bush reminded reporters at a news conference Thursday that it will take time for the recently enacted $160 billion stimulus package to have the intended effect of boosting consumer spending. That spending accounts for roughly 70 cents of every dollar of gross domestic product, which slowed in the fourth quarter of last year to a growth rate of just 0.6 percent. 

"I know there's a lot of, here in Washington people are trying to — stimulus package two — and all that stuff,” Bush told reporters. “Why don't we let stimulus package one, which seemed like a good idea at the time, have a chance to kick in?"

Tax rebate checks are expected to begin making their way to consumers’ pockets starting in May. But it’s not clear how many people will head straight to the mall to spend them.

A widely watched consumer confidence measure, reported earlier this week, fell sharply in February along with confidence about job prospects.  And a Zogby poll earlier this month found that half of those surveyed said they would use their tax rebates either to pay down debts or save up for a rainy day. Neither of those choices will give the economy the quick boost that Congress and the White House are hoping for.

As they quizzed Bernanke this week on his outlook, some on Capitol Hill wondered aloud if Congress shouldn’t be doing more to help head off the current wave of foreclosures and the resulting damage to confidence and spending.

“My concern is we were behind the curve in trying to deal with the issue,” said Sen. Robert Menendez, D-N.J.. “And my concern is now we seem to be continuing behind the curve in stemming the hemorrhaging that's going on.”

After more than a year of falling sales and prices, the housing market shown no signs of hitting bottom. The latest data, released this week, showed that new home sales continued to fall in January, and the level of unsold inventory climbed. Home values, which helped support consumer spending during the boom years, have been falling in many markets nationwide.

And 30-year mortgage rates, which fell sharply in the second half of 2007, have been rising again — up to about 6.25 percent from 5.5 percent as recently as January.

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