Congress and the Bush administration Wednesday were nearing agreement on an emergency spending and tax cut package intended to rebuild economic confidence that has fallen sharply since the September 11 terrorist attacks.
Treasury Secretary Paul O'Neill told the Senate Banking Committee that it now seems certain that the economy contracted in the just completed third quarter of the year. And that growth will be negative in the current fourth quarter. Mr. O'Neill declined to use the word recession but said the pace of recovery depends on how fast consumers regain their confidence.
Mr. O'Neill said President Bush is willing to agree to Democratic party suggestions that emergency spending increases and tax cuts be as large as $60 billion to $75 billion. "It's right for helping to the best degree we can to get our economy righted again," he added. "And it is appropriate for the long-term so that we don't do damage for the long-term."
The fiscal measures could nearly eliminate what had been projected to be a large budget surplus. Together with $45 billion of extra spending already approved since September 11, the fiscal measures could total $100 billion, or about one percent of America's gross domestic product.
While supportive of a move to provide short-term stimulus to a lagging economy, Mr. O'Neill sought to discourage generalized spending increases. "There's no doubt that we all have things we'd like to do, that we all have things that we think are advisable for a long period of time," he said. "But I think it is really important that we work together not to include everything that people can imagine as part of this rifle-shot attempt to make sure that we do the right thing for the American people."
Both fiscal policy, that is, spending and tax measures, and monetary policy, adjustments in interest rates, are being used to stimulate what has been a remarkably strong but now weakened U.S. economy. Until the current quarter, the U.S. economy had expanded for more than nine consecutive years. A recession is defined as two consecutive quarters of negative growth.