US Treasury Secretary Henry Paulson on Wednesday stood by his view that the US economy will avoid recession this year and said the Treasury will act quickly to distribute tax rebate payments.
"The US economy is diverse and resilient, and our long-term fundamentals are healthy. I believe our economy will continue to grow, although at a slower pace than we have seen in recent years," Paulson told the US House of Representatives Budget Committee.
US President George W. Bush on Wednesday is expected to sign into law a $152 billion fiscal stimulus package that will provide tax rebates to 130 million Americans, with the size of most payments about $600 for an individual and $1,200 for a couple.
Paulson said the Internal Revenue Service would simultaneously manage the spring tax filing season and preparations for issuing the rebate payments starting in early May.
"Payments will be largely completed this summer, putting cash in the hands of millions of Americans at a time when our economy is experiencing slower growth," he said. "Together, the payments to individuals and the incentives for businesses will help create more than half a million jobs by the end of this year."
Paulson again called on Congress to aid the housing sector by passing legislation that will modernise the Federal Housing Administration and create a new, stronger regulator for Fannie Mae and Freddie Mac, the government-sponsored housing finance enterprises.
Under the stimulus plan, Fannie and Freddie will be temporarily allowed to invest in larger mortgages, providing more resources for refinancing troubled mortgages in costly coastal housing markets.
Paulson made clear he accepted the provision only in order to secure a deal on a wider package of measures that he believes will give a lift to the economy. Any effort to permanently raise the loan ceiling should be tied to broader regulatory reform, he said.
"If there's no reform, let them expire," he said. He also urged Congress to pass legislation that will allow states to issue tax-exempt bonds for innovative mortgage refinancing programs. Paulson said he would work to help financial markets reprice risk and work through their current stress.
"While we are in a difficult transition period as markets reassess and reprice risk, I have great confidence in our markets. They have recovered from similar stressful periods in the past, and they will again," he said.
In answer to a question, Paulson said markets had taken into account the 1.8 million mortgages that face resets to higher interest rates over the coming two years but said wider aspects of the mortgage crisis still needed to be digested.
"That's pretty well baked into what's going on in the capital markets," Paulson said of the resets. "That doesn't mean that the human cost and the cost to the economy overall and neighbourhoods have been repriced, and that is something we're working hard to deal with in a number of programs we have."
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