<font size="6"><b>The conservative present administration:<br></b></font><br><br><h1 class="storyheadline">Paulson, Bernanke: Slow growth ahead</h1><h2 class="storysubhead">Treasury secretary and Fed chairman say rate cuts and rebates should keep economy out of recession but warn of tough times.</h2>
<div class="storybyline">By Chris Isidore, CNNMoney.com senior writer</div><div class="storytimestamp">February 14 2008: 3:36 PM EST</div>
<p>NEW YORK (CNNMoney.com) -- Federal Reserve
Chairman Ben Bernanke and Treasury Secretary Henry Paulson both
acknowledged problems in the U.S. economy Thursday, but both said they
believe the nation will avoid falling into recession.</p><p>The two
made their comments at a hearing before the Senate Banking Committee
about the economy. Their testimony comes in the wake of troubling
economic readings that have raised recession fears on Wall Street.</p><p>But
while Paulson and Bernanke repeatedly insisted they expect the economy
to avoid shifting into reverse - thanks in part to a series of interest
rate cuts by the Fed and a $170 billion economic stimulus package
signed by President Bush Wednesday - they conceded the economy faces
additional headwinds.</p><p>Bernanke and Paulson both said the outlook
for the economy is noticeably worse than it was as recently as a few
months ago, and both expect cuts in official growth forecasts from the
administration and the Fed in upcoming months.</p><p>The Fed is
currently predicting 1.8% growth for this year, but Bernanke said a new
forecast would be finalized next week. The Council of Economic
Advisors' most recent estimate was for the economy to grow by 2.7% in
2008.</p><p><b>More losses, tight credit ahead</b></p><p>Bernanke said
he believes major banks and Wall Street firms are likely to take
additional earnings hits tied to bad investments in subprime mortgages.
That could lead to tighter lending standards and contribute to an
overall slowdown.</p><p>"More expensive and less available credit seems
likely to continue to be a source of restraint on economic growth,"
Bernanke said.</p><p>But he added he's not worried about bank failures
because he thinks banks entered the current downturn with sufficient
capital and have been able to raise additional funds.</p><p>Some of the panel members praised the two for the steps taken so far to spur the economy.</p><p>The
Fed last month made two significant interest rate cuts: three-quarters
of a percentage point at an emergency meeting, followed by half a point
eight days later.</p><p>Bernanke said Thursday that the Federal Open
Market Committee, its rate-setting body, was ready to act again if
further economic readings justify it.</p><p>But some senators
criticized the pair, suggesting the administration and the central bank
are at least partly to blame for the current economic problems, due to
lax oversight and lack of early response to the downturn in housing.</p><p>Sen.
Charles Schumer, D-N.Y., suggested the problems in credit and financial
markets pose a greater threat to the economy than a slowdown in
consumer spending.</p><p>"Aren't you underestimating, not giving enough
attention to, the severity of the problem in the credit markets?" asked
Schumer. He said Wall Street executives he's talked to "seem much more
worried" about credit woes than Paulson and Bernanke.</p><p>Paulson, a former CEO of Goldman Sachs (<a href="http://money.cnn.com/quote/quote.html?symb=GS&source=story_quote_link" target="_blank">GS</a>, <a href="http://money.cnn.com/magazines/fortune/fortune500/2007/snapshots/575.html?source=story_f500_link" target="_blank">Fortune 500</a>), responded that he also spoke regularly with top Wall Street executives, adding "some are more worried than others."</p>
<p><b>Paulson on defensive</b></p><p>Sen.
Robert Menendez, D-N.J., pointed out that Goldman Sachs is one of the
growing number of investment banks forecasting a recession this year
and suggested that Paulson and Bernanke "hit the snooze button" when
alarm bells about the economy first went off last year.</p><p>Menendez said he wasn't trying to talk down the economy, but that he was looking for "honest assessments" from Paulson.</p><p>Paulson bristled at the comments, telling Menendez, "If you're trying to talk the economy up, I'd hate to see you talk it down."</p>
<p>Menendez shot back, "I'm just trying not to hide my head in the sand."</p><p>"I'm not either," responded the Treasury Secretary.</p><p>The
two also were asked to explain why investments in many major banks and
Wall Street firms by sovereign wealth funds should not be a concern.</p><p>Sovereign
wealth funds - large pools of money controlled by foreign countries -
have taken stakes in recent months in Citigroup (<a href="http://money.cnn.com/quote/quote.html?symb=C&source=story_quote_link" target="_blank">C</a>, <a href="http://money.cnn.com/magazines/fortune/fortune500/2007/snapshots/309.html?source=story_f500_link" target="_blank">Fortune 500</a>), Merrill Lynch (<a href="http://money.cnn.com/quote/quote.html?symb=MER&source=story_quote_link" target="_blank">MER</a>, <a href="http://money.cnn.com/magazines/fortune/fortune500/2007/snapshots/865.html?source=story_f500_link" target="_blank">Fortune 500</a>) and Morgan Stanley (<a href="http://money.cnn.com/quote/quote.html?symb=MS&source=story_quote_link" target="_blank">MS</a>, <a href="http://money.cnn.com/magazines/fortune/fortune500/2007/snapshots/905.html?source=story_f500_link" target="_blank">Fortune 500</a>).</p>
<p>Paulson
said these investments are an important endorsement of the U.S.
financial system and that they do not pose a risk of foreign
governments having undue influence on major banks here.</p><p>"I think we need to be vigilant. I don't think we need to be fearful," said Paulson.</p><p><b>Paulson says economy 'fundamentally strong' </b></p>
<p>Throughout the hearing, Paulson and Bernanke repeated that they expect slower growth and not a recession.</p><p>Paulson
said the economy "is fundamentally strong, diverse and resilient" and
that the main problem is that it is "undergoing a significant and
necessary housing correction."</p><p>But Senate Banking Chairman
Christopher Dodd, D-Conn., said the slowdown is due to a crisis of
confidence among both consumers and investors.</p><p>Dodd was critical
of some of the Bush administration's housing efforts, including the
freeze on foreclosures announced this week by Paulson and some of the
country's leading mortgage lenders.</p><p>"It is a lifeline more to lenders than to borrowers in my view," said Dodd.</p><p>Sen.
Richard Shelby of Alabama, the ranking Republican on the committee,
said he's concerned that the mortgage meltdown is spreading to the rest
of the economy.</p><p>"One thing that is now clear to all of us is the subprime mortgage problems are not contained," said Shelby.</p><p>He added that he doubts whether the stimulus package would prove to be effective.</p>
<p>"Even
if every consumer spends their $600 tax rebate, I've equated it to
pouring a glass of water in the ocean and expecting it to make a
difference," Shelby said. "I hope I'm wrong." <a href="http://cnnmoney.printthis.clickability.com/pt/cpt?action=cpt&title=Bernanke%2C+Paulson+both+see+U.S.+avoiding+recession+in+%2708+-+Feb.+14%2C+2008&expire=-1&urlID=26524064&fb=Y&url=http%3A%2F%2Fmoney.cnn.com%2F2008%2F02%2F14%2Fnews%2Feconomy%2Fbernanke_paulson%2Findex.htm%3Fcnn%3Dyes&partnerID=2200#TOP"><img alt="To top of page" src="http://i.cnn.net/money/images/bug.gif" border="0" height="7" width="7"></a></p>
<div class="cnnendofstory"><div class="cnnendofstorycontent"><a href="http://money.cnn.com/2008/02/13/news/economy/questions/index.htm?postversion=2008021312" target="_blank">What senators should ask Bernanke and Paulson</a><br>
<br>
<a href="http://money.cnn.com/2008/02/13/news/economy/bush_stimulus/index.htm?postversion=2008021314" target="_blank">Bush signs bill aimed at boosting economy</a><br>
<br>
<a href="http://money.cnn.com/2008/02/04/news/economy/stimulus_jobs/index.htm?postversion=2008020812" target="_blank">Stimulus plan may not lead to many new jobs</a></div></div><br clear="all"><br><br><br><br><br><font size="6"><b>The Response of the Business Community:</b></font><br>
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</tr> <tr valign="top"> <td width="305"> <table border="0" cellpadding="0" cellspacing="0" width="100%"> <tbody><tr id="quoterow1"> <td class="quoteprice">12,376.98</td> <td class="quotechange"><span class="textnegative">-175.26 / -1.40%</span> <br>
<div class="quotetimestamp">Feb 14 4:04pm ET †</div> </td> </tr> </tbody></table> <table border="0" cellpadding="0" cellspacing="0" width="100%"> <tbody><tr id="tablerow"> <td class="quoteheader">Open:</td>
<td class="quotedata">12,551.51</td></tr> <tr id="tablerow"> <td class="quoteheader">High (day):</td> <td class="quotedata">12,557.61</td></tr> <tr id="tablerow"> <td class="quoteheader">Low (day):</td>
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233,778,821.00</td></tr> <tr id="tablerow"> <td class="quoteheader">Prev. Close:</td> <td class="quotedata">12,552.24</td></tr> <tr id="tablerow"> <td class="quoteheader" id="BottomRow">52-Week Range (Low - High):</td>
<td class="quotedata" id="BottomRow">11,634.82 - 14,198.10</td> </tr> </tbody></table> </td> <td id="BorderL"> <table border="0" cellpadding="0" cellspacing="0" width="100%"> <tbody><tr> <td>
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<table class="bctable" border="0" cellpadding="0" cellspacing="0" width="100%"><tbody><tr id="header" valign="middle"><th class="imgcell"><br></th> <th class="textcell">Feb 14 4:53pm ET †</th> <th class="change">Change</th>
<th class="perchange">%Change</th> <th class="level">Level</th> </tr> <tr class="dividerline"><td colspan="5"><img src="http://custom.marketwatch.com/1.gif" height="1" width="1"></td></tr><tr id="tablerow" class="rowcolor1">
<td class="imgcell"><img src="http://custom.marketwatch.com/custom/cnnmoney-com/markets/images/clock-closemkt.gif" border="0"></td><td class="textcell"><a href="javascript:GoURL(dowURL,'');">Dow</a></td><td class="change">
<span class="textnegative">-175.26</span></td><td class="perchange"><span class="textnegative">-1.40%</span></td><td class="level">12,376.98</td></tr><tr id="tablerow" class="rowcolor2"><td class="imgcell"><img src="http://custom.marketwatch.com/custom/cnnmoney-com/markets/images/clock-closemkt.gif" border="0"></td>
<td class="textcell"><a href="javascript:GoURL(nasdaqURL,'');">NASDAQ</a></td><td class="change"><span class="textnegative">-41.39</span></td><td class="perchange"><span class="textnegative">-1.74%</span></td><td class="level">
2,332.54</td></tr><tr id="tablerow" class="rowcolor1"><td class="imgcell"><img src="http://custom.marketwatch.com/custom/cnnmoney-com/markets/images/clock-closemkt.gif" border="0"></td><td class="textcell"><a href="javascript:GoURL(sandpURL,'');">S&P</a></td>
<td class="change"><span class="textnegative">-18.35</span></td><td class="perchange"><span class="textnegative">-1.34%</span></td><td class="level">1,348.86</td></tr> <tr class="dividerline"><td colspan="5"><img src="http://custom.marketwatch.com/1.gif" height="1" width="1"></td>
</tr><tr id="tablerow" class="rowcolor2"><td class="imgcell"><img src="http://custom.marketwatch.com/custom/cnnmoney-com/markets/images/clock-closemkt.gif" border="0"></td><td class="textcell">DJ Wilshire 5000</td><td class="change">
<span class="textnegative">-187.50</span></td><td class="perchange"><span class="textnegative">-1.35%</span></td><td class="level">13,655.93</td></tr><tr id="tablerow" class="rowcolor1"><td class="imgcell"><img src="http://custom.marketwatch.com/custom/cnnmoney-com/markets/images/clock-closemkt.gif" border="0"></td>
<td class="textcell"><a href="javascript:GoURL(russellURL,'');">Russell 2000</a></td><td class="change"><span class="textnegative">-16.61</span></td><td class="perchange"><span class="textnegative">-2.30%</span></td>
<td class="level">705.32</td></tr><tr id="tablerow" class="rowcolor2"><td class="imgcell"><img src="http://custom.marketwatch.com/custom/cnnmoney-com/markets/images/clock-closemkt.gif" border="0"></td><td class="textcell">
<a href="javascript:GoURL(phillysemiURL,'');">Philadelphia Semiconductor</a></td><td class="change"><span class="textnegative">-10.23</span></td><td class="perchange"><span class="textnegative">-2.81%</span></td><td class="level">
353.26</td></tr><tr id="tablerow" class="rowcolor1"><td class="imgcell"><img src="http://custom.marketwatch.com/custom/cnnmoney-com/markets/images/clock-closemkt.gif" border="0"></td><td class="textcell"><a href="javascript:GoURL(dowtransportsURL,'');">Dow Transports</a></td>
<td class="change"><span class="textnegative">-68.71</span></td><td class="perchange"><span class="textnegative">-1.44%</span></td><td class="level">4,705.88</td></tr><tr id="tablerow" class="rowcolor2"><td class="imgcell">
<img src="http://custom.marketwatch.com/custom/cnnmoney-com/markets/images/clock-closemkt.gif" border="0"></td><td class="textcell"><a href="javascript:GoURL(dowutilitiesURL,'');">Dow Utilities</a></td><td class="change">
<span class="textnegative">-5.26</span></td><td class="perchange"><span class="textnegative">-1.04%</span></td><td class="level">498.79</td></tr><tr id="tablerow" class="rowcolor1"><td class="imgcell"><img src="http://custom.marketwatch.com/custom/cnnmoney-com/markets/images/clock-closemkt.gif" border="0"></td>
<td class="textcell"><a href="javascript:GoURL(nysecompositeURL,'');">NYSE Composite</a></td><td class="change"><span class="textnegative">-105.07</span></td><td class="perchange"><span class="textnegative">-1.16%</span></td>
<td class="level">8,968.41</td></tr><tr id="tablerow" class="rowcolor2"><td class="imgcell"><img src="http://custom.marketwatch.com/custom/cnnmoney-com/markets/images/clock-closemkt.gif" border="0"></td><td class="textcell">
<a href="javascript:GoURL(amexcompositeURL,'');">AMEX Composite</a></td><td class="change"><span class="textnegative">-11.14</span></td><td class="perchange"><span class="textnegative">-0.49%</span></td><td class="level">
2,263.10</td></tr><tr id="tablerow" class="rowcolor1"><td class="imgcell"><img src="http://custom.marketwatch.com/custom/cnnmoney-com/markets/images/clock-closemkt.gif" border="0"></td><td class="textcell"><a href="javascript:GoURL(morningstarURL,'');">Morningstar Index</a></td>
<td class="change"><span class="textnegative">-46.24</span></td><td class="perchange"><span class="textnegative">-1.41%</span></td><td class="level">3,286.42</td></tr> <tr class="dividerline"><td colspan="5"><img src="http://custom.marketwatch.com/1.gif" height="1" width="1"></td>
</tr> <tr valign="top"> <td colspan="5" class="footnote" height="17"><img src="http://custom.marketwatch.com/custom/cnnmoney-com/markets/images/clock-openmkt.gif"> Open <img src="http://custom.marketwatch.com/custom/cnnmoney-com/markets/images/clock-closemkt.gif"> Market Closed *as of previous close</td>
</tr></tbody></table><br><br><br>-- <br>Gray Tree Crab aka "Big Bertha"