Fed alone can't avert recession: Obama's adviser

By Emily Kaiser

WASHINGTON (Reuters) - U.S. Democratic presidential hopeful Barack Obama's rapid ascent has investors eager to pin down his fiscal policies as a suspect U.S. economy pushes pocketbook issues to the fore.

Austan Goolsbee, the Illinois senator's top economic adviser, on Monday described Obama's economic policy as an eclectic mix favoring middle-class tax cuts as well as raising the capital gains tax. He backs raising the minimum wage and wants to reopen trade pacts such as NAFTA to add labor and environmental protections.

In a Reuters interview, Goolsbee said the economy was clearly sagging under the weight of a housing downturn, tightening credit conditions and rising inflation -- problems that he said interest rate cuts alone would not solve.

"It's at least going to be painful and it certainly has the possibility of being quite a difficult situation," said Goolsbee, an economics professor at the University of Chicago Graduate School of Business.

"We can't just rely on the Federal Reserve at this point. I do think it makes sense to consider what the fiscal policy options are for helping prevent this thing from spreading."

Fresh off a win in the Iowa Democratic caucuses and with polls showing him pulling well ahead of New York Sen. Hillary Clinton in New Hampshire's primary election on Tuesday, Obama is coming under particularly close scrutiny as voters and the media try to get a handle on his policies.

The Wall Street Journal predicts he would impose a record tax increase while others in the financial world are not sure what to expect of an Obama presidency.

Obama has called for a tax credit of up to $500 per person, or $1,000 per family, to offset the payroll taxes they pay. According to his Web site, that would completely eliminate income taxes for 10 million people. At the same time, he also favors letting Bush administration tax cuts expire and raising the capital gains tax. (For more on Obama's key policy positions,