WASHINGTON (Reuters) - President-elect Barack Obama warned on Thursday that the U.S. economy could stay mired in recession for years without bold action and he urged lawmakers to work day and night to pass a massive stimulus plan.
Obama, who takes office on January 20, promised to set a new course for the economy and to quickly toughen the financial regulatory system.
But he gave few new details about the package of tax cuts and public-works spending likely to cost $800 billion or more.
“I don’t believe it’s too late to change course, but it will be if we don’t take dramatic action as soon as possible,” Obama said in speech on the economy at George Mason University in Fairfax, Virginia.
“If nothing is done, this recession could linger for years. The unemployment rate could reach double digits.”
Wall Street showed disappointment that Obama did not offer more specifics. The Dow Jones industrial average was down more than 1 percent in mid-afternoon trading, as the lack of new details added to other factors weighing on the market.
On the day Congress formally confirmed him as the winner of the November 4 election to take over from Republican President George W. Bush, Obama is about to inherit an economy that has been in recession for more than a year.
Obama is seeking approval by mid-February of the proposed stimulus package that he is crafting in close consultation with the Democratic-led Congress.
Obama has also been talking with Republican lawmakers to try to win their support. But skyrocketing deficits have made some Republicans and moderate Democrats skittish about the price tag.
In addition to tax cuts for families and businesses, the plan would pay for construction and repair of roads and schools and provide aid to cash-strapped cities and states.
Obama has previously said he was considering a plan in the range of $775 billion, though he has suggested the final cost could exceed that. He gave no dollar figure in the speech.
Obama listed $1,000 tax cuts for middle-class families as one element of the package.
Shortly before Obama delivered his speech, Rep. Nancy Pelosi, the Democratic speaker of the House of Representatives, said there was strong public support for a stimulus plan.
She said that over the next couple of weeks, House committees will work on legislation and that the House will forego its scheduled mid-February recess if work on the measure is not finished by then. “We are not going home” until the legislation is completed, Pelosi told reporters.
Republican leaders in Congress have praised Obama’s willingness to include them in discussions on the stimulus plan and have said they are in general agreement that economic conditions warrant action.
RECORD-SETTING PERCENTAGE OF GDP
But a bleak forecast released this week on the U.S. budget deficit has added to Republican calls to take a careful look at the size of the plan. They have also warned against including new spending programs that would require ongoing funding.
A report on Wednesday showed the deficit for the current 2009 fiscal year would triple to around $1.2 trillion, even before taking into account the cost of the stimulus package.
The deficit figure in the Congressional Budget Office report amounts to about 8.3 percent of gross domestic product, easily shattering the post-World War Two record of 6 percent hit in 1983.
“I do believe that our economy is facing a crisis,” said House Minority Leader John Boehner, an Ohio Republican, told reporters. “And I do believe Washington has to act.”
Noting the whopping $1.2 trillion deficit, Boehner added: “Given the deficit issues that we’re facing, we’ve got to address the economic crisis, but we also have to address how much debt we’re going to build up.”
In addition to the fiscal package, Obama urged further measures to shore up confidence in the financial system and restore smooth functioning of the frozen credit markets.
He vowed to quickly overhaul the Wall Street regulatory system and to crack down on “wrongdoers” who slip through regulatory cracks, in an apparent reference to the alleged $50 billion fraud scandal involving financier Bernard Madoff.
Obama said his administration would use the “full arsenal of tools to get credit flowing again.” He also called for a stepped-up effort to prevent home foreclosures.
Additional reporting by Jeremy Pelofsky, Richard Cowan, Tim Ahmann, Rodrigo Campos and Ellis Mnyandu; editing by David Wiessler
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