U.S. Treasury's Paulson says supports Fed rate cuts

WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson said he was supportive of the Federal Reserve's interest rate cuts, adding he believes the weak U.S. economy will recover and the U.S. dollar's value will eventually reflect better long-term prospects.

"I've got confidence in the Fed and I've been very supportive of what the Fed has done and what the Fed is doing," Paulson said in an interview on Bloomberg Television after the Fed lowered its key interest rate by a quarter-percentage point to 2.0 percent.

"As you've heard me say many times, I'm a strong dollar man, we have a strong dollar policy and although our economy, which has got some ups and downs, and is going through a rough patch right now, I think our long-term economic fundamentals compare very favourably when I look around the world and I think they're going to be reflected in the value of our currency," he said.

Paulson also said that data on Wednesday showing better-than-expected gross domestic product growth of 0.6 percent in the first quarter did not alter his view that the economy has slowed significantly and faces headwinds from high energy and food prices, a housing slump and financial markets turmoil.

He declined to say whether the United States would experience a recession. "It's not that I'm reluctant to say the word. I don't want to enter into a technical debate. Economists are going to decide what label to use what to call it. That's irrelevant to the American people."

In a separate interview on CNN, Paulson said it was not time to take additional steps to aid the U.S. economy such as extending unemployment benefits, as called for by some Democrats in Congress.

"For now I'm saying let's watch the first one, watch it work, watch the economy closely and I'm not calling for a second stimulus package."

He said high gasoline prices were not something that could be resolved by short-term solutions such as a summer gas tax "holiday" and required longer term plans such as more alternative energy sources.

Paulson told Bloomberg Television that financial markets were making progress in stabilizing by raising capital and selling assets. "I believe we are closer to the end of this problem than we are to the beginning. I also believe that there inevitably will be some more bumps in the road, but again, I'm positive."

Regarding the housing crisis, Paulson said the Treasury would look at a proposal from Federal Deposit Insurance Corp. Chairman Sheila Bair to provide government loans to about 1 million homeowners to let them pay down up to 20 percent of the principal on mortgages deemed unaffordable, but said it was not a high priority for the Treasury.

"Obviously we will look carefully at this program, but I need to point out, it's only fair to point out, our priority is doing the things we're already doing administratively, doing the things we're already doing working with the private sector and getting the legislation passed which is on the goal line," he said, referring to bills that would modernize the Federal Housing Administration and reform oversight of government-sponsored housing enterprises.

(Reporting by David Lawder; Editing by Diane Craft)