Paulson: Economy faces headwinds but growing

By Glenn Somerville

WASHINGTON (Reuters) - Treasury Secretary Henry Paulson conceded on Tuesday the economy was being buffeted by "headwinds" but said the Bush administration has not yet decided whether it needs new stimulus measures.

"The economic data is mixed. We're watching this very closely," Paulson said on CNBC television. "We're facing strong headwinds but the economy is going to continue to grow."

Pressed to say whether the White House will act to boost economic activity, Paulson would only say the issue was under consideration. He said a plan to offer mortgage relief to less credit-worthy Americans might be broadened because there was no sign that a slump in home building and prices was easing.

"We're considering various options in order to do everything we can to keep this economy growing," he said.

The Treasury chief spent an hour on television offering his reassurances that growth would continue, but was challenged by the head of the prestigious National Bureau of Economic Research, who said recession risks were rising.

"I think we're not in a recession now," said Martin Feldstein, a Harvard professor who heads the private-sector NBER, which determines when recessions occur. He agreed with Paulson that slow growth lies ahead but warned it might be so feeble that it does not continue.

"For the next quarter or so that (slow growth) is the most likely outcome, but I think there is a serious risk that it could get worse than that and we could see an actual downturn," Feldstein said.

Some type of fiscal stimulus is needed to avert a potential recession, he added, along with more interest-rate cuts from the Federal Reserve.

The U.S. central bank has cut benchmark overnight interest rates by a cumulative 1 percentage point, to 4.25 percent, since mid-September and is expected to lower them again this month.

Feldstein said what was needed now was a "small down payment" with a fiscal stimulus plan that could be put in place quickly, but that a larger package should be put together that would be triggered if the economy actually turned down.

President George W. Bush gave hope to the possibility of an economic stimulus package when he said last week the White House was weighing all options to boost the economy.

On Tuesday, Paulson was at pains to say that he was not going to preempt whatever Bush might order, if anything.

"I don't think it's right for me to get out front of the president. This is the president's decision and he's been focused on the economy throughout his term in office," Paulson said.

JOB PROSPECTS DIMMING

Bush is scheduled to deliver the annual State of the Union message to Congress on January 28, potentially a prime venue for unveiling new measures to demonstrate a shared concern over the havoc wreaked by a weak housing market, rising energy prices and diminished job growth.