Amid continued global market turmoil, the U.S. Congress' top economic forecaster says he believes the United States is entering a period of slow growth, but that the country will avoid a recession. VOA's Michael Bowman reports from Washington, where the head of the Congressional Budget Office testified on Capitol Hill Wednesday.
According to many economists, the root cause of this week's worldwide market upheaval is the widespread view that the United States is at risk of a recession after four years of moderate-to-robust growth. Such fears have been stoked by recent reports of a slowdown in the economy, rising unemployment, and no end in sight to a credit crunch as well as a weakening U.S. housing market.
|Trader Albert Young watches the numbers at the New York Stock Exchange, 23 Jan 2008|
But are the fears justified? Maybe, but probably not, according to the assessment from Congressional Budget Office (CBO) Director Peter Orszag.
"The bottom line is that the risk of recession is substantially elevated," he said. "But CBO expects a period of unusually weak growth rather than outright recession: growth for the year as a whole of under two percent and a rise in the unemployment rate to an average of 5.1 percent during 2008."
Orszag was speaking before the House Budget Committee. Before the committee met, one member, Democratic Representative Jim Cooper, predicted Washington will act soon to boost the economy in the form of a federal stimulus package, with its centerpiece likely to be rebate checks for U.S. taxpayers.
|Congressional Budget Office Director Peter Orszag testifying on Capitol Hill, 22 Jan 2008|
"I think you are going to see Democrats and Republicans, the White House and Congress putting about a one percent [of GDP] stimulus into this economy," he explained. "Hopefully the checks can be in people's hands by the spring [coming months], at the latest by June."
Recent days have seen a flurry of discussions between congressional leaders and White House officials in an attempt to craft the package, with a current estimated price tag of about $150 billion.
But some on Capitol Hill are raising concerns about the plan. Paul Ryan is the ranking Republican on the Budget Committee.
"I am concerned that, in our rush to help, we will talk ourselves into a quick feel-good hit [plan] today that will leave us with a bigger budgetary hangover tomorrow," he explained. "We need to understand that we simply cannot spend our way to prosperity. I am particularly concerned that Congress will use the excuse of fiscal stimulus to push through a wish list of new spending, further worsening our budget outlook and our nation's economic future."
To date, there appears to be bipartisan consensus that any package should be quickly implemented and brief in duration, a quick financial jolt to spur consumer and business spending.
But will it work? CBO Director Orszag says the economic bounce resulting from the last stimulus package, enacted in 2001 as the United States was slipping into recession, proved to be greater than many economists had predicted. He added that lower-income Americans are more likely to quickly spend any tax rebate, while the wealthy are more likely to save or invest the extra cash.
The larger question of whether a recession can be avoided, with or without a stimulus package, is a matter of debate. Eric Schurenberg is managing editor of Money Magazine.
"It is really hard to know what will happen. A lot depends on whether financial institutions can work themselves out of this credit crunch and begin lending again and put money to work in the economy," he noted.
Already the U.S. Central Bank has acted to make it easier for consumers and businesses to secure loans. Tuesday, the Federal Reserve lowered a key interest rate by three-quarters of one percent, and many economists predict further rate cuts will be forthcoming.
But if a global economic downturn is to be averted, some believe central banks in Europe and elsewhere will have to follow the Fed's lead.
Art Hogan is chief market strategist at the global investing house Jefferies and Company.
''When you see the Fed getting aggressive, you hope that is something that will be in a synchronized fashion with other [central banks of] industrialized nations, in particular the European Central Bank and the Bank of England," he noted. "That not happening yet has been a disappointment in the marketplace, and we seeing some [stock] selling pressure because of that."
For a second straight day, U.S. markets opened sharply lower, with oil prices down.