Declaring that “a global economic crisis…pushed the Fed” to call an emergency meeting on Monday and to cut rates on Tuesday morning, Democratic presidential candidate Sen. Hillary Clinton called for an economic stimulus package that would include increased federal spending, new housing regulation, and tax rebates.
On Tuesday, deciding to act before its regularly scheduled meeting next week, the Federal Reserve Board’s Open Market Committee lowered its target for the federal funds rate by an unexpectedly high 75 basis points to 3.5 percent.
Many were expecting a smaller cut–and not one made so soon. Last Friday, for instance, Standard & Poor’s predicted in its weekly financial analysis that “50 basis-point…cut is likely, but there could be a larger cut, particularly if fourth-quarter real GDP comes in negative or the Fed decides to cut more to support the President’s stimulus package.” But the Fed acted more quickly than the rating agency predicted, since the U.S. Commerce Department’s Bureau of Economic Analysis is scheduled to release its fourth-quarter Gross Domestic Product figures on January 30.
Sen. Clinton, referring to current economic situation as “obviously deteriorating,” chided President Bush for leaving out non-taxpayers from his own stimulus plan. She said that “it would be incredibly short-sighted not to it would include those people who do not currently pay income taxes. We have fifty to seventy million people who are seniors on fixed incomes, who are working people who don’t make enough money to actually pay income tax, that they have to get some help.”
Also on Tuesday morning, Treasury Secretary Henry Paulson told the U.S. Chamber of Commerce “that both immediate tax relief for income tax payers and incentives for businesses to invest and hire are effective in creating growth and jobs in the short-term.” Like Sen. Clinton, he said that a short-term stimulus should be delivered quickly—”long before winter turns to spring.”
Further, President Bush may now be open to a bigger stimulus package than the one of about 1 percent of GDP, or $140 billion to $150 billion that he proposed last week, Bloomberg reported. “I’ve not heard anybody suggesting larger than 1 percent, but that doesn’t mean, behind closed doors in their negotiating discussions, they aren’t bringing that up,” the news service quoted White House press secretary Dana Perino as saying.
Sen. Clinton urged the president to act very quickly and to ask Paulson to convene a meeting of the President’s Working Group on Financial Markets. Chaired by the treasury secretary, the PWG consists of the chairmen of the Federal Reserve Board, the Securities and Exchange Commission, and the Commodity Futures Trading Commission.