Obama says drafting bold economic stimulus

By Caren Bohan and Jeff Mason

CHICAGO (Reuters) - President-elect Barack Obama said on Saturday that he was crafting an aggressive two-year stimulus plan to revive the troubled economy, warning that swift action was needed to prevent a deep slump and a spiral of falling prices.

Obama gave a bleak assessment of the economy in his most detailed comments on the subject since winning the November 4 election and just a day after U.S. stock markets rallied on his apparent choice of Timothy Geithner, president of the New York Federal Reserve, as Treasury secretary.

"If we don't act swiftly and boldly, most experts now believe that we could lose millions of jobs next year," Obama said in a weekly radio address.

"We now risk falling into a deflationary spiral that could increase our massive debt even further," he said.

Obama said the plan would aim to save or create 2.5 million jobs by January 2011 and would be "big enough to meet the challenges we face." Any additional jobs would offset what is expected to be a dismal employment picture in the near future.

Obama, who succeeds President George W. Bush on January 20, moved rapidly to form the team that will address U.S. economic and foreign policy challenges, convincing former rival Hillary Clinton to be his secretary of state and selecting Geithner, a Treasury official in President Bill Clinton's administration.

Those appointments underscored a centrist bent to the personnel decisions being made by Obama, who had a liberal record as a U.S. senator from Illinois.

But the Democratic president-elect, who has been silent about his Cabinet picks, focused his Saturday address on a program to create jobs and warned that the economy was likely to get worse before it gets better.

Still, as fears grow that the economy could be in for one of its most severe downturns in decades, Obama is signaling anything but a middle-of-road approach on economic stimulus.

He called in October for a $175 billion stimulus measure, but his radio speech suggested he was ready to push for a much larger package. He did not give a price-tag in the speech.

The two-year time frame for the stimulus further indicated a sizable proposal. Most such plans are aimed at covering a one-year period.

'LIKELY TO GET WORSE'

Obama and his economic team have worked for weeks to lower expectations that the economic problems can be solved fast.

"There are no quick or easy fixes to this crisis, which has been many years in the making, and it's likely to get worse before it gets better," Obama said.

The top Republican in the House of Representatives warned against increasing government spending to help the economy.