Geithner Says U.S. Economic Recovery Still Too Weak to Reduce Unemployment
Treasury Secretary Timothy F. Geithner said the U.S. economic expansion is still too weak to slash unemployment or a budget deficit headed for $1.5 trillion.
“There’s much more confidence now that we’ve got a sustainable expansion,” Geithner told the World Economic Forum’s annual meeting in Davos, Switzerland. “It’s not a boom. It’s not an expansion that’s going to offer a rapid decline in unemployment.”
While the Dow Jones Industrial Average this week passed 12,000 in intraday trading for the first time since June 2008 and more data suggested the recovery is gathering momentum, the jobless rate remains above 9 percent. Such weak-spots are tempering the optimism on display this week as 2,500 executives, economists and lawmakers meet in the Swiss Alps.
“The good news is in the U.S. we’re seeing renewed growth,” Joe Saddi, chairman of consulting firm Booz & Co., said in an interview in Davos. “There is still an unemployment situation and it remains to be seen if there is a credible strategy for dealing with the deficit.”
Geithner, 49, is the first holder of his office to visit Davos in 11 years and the highest-ranking member of President Barack Obama’s administration yet to attend the conference.
In an hour-long interview with broadcaster Charlie Rose, he said that while the budget deficit is “unsustainable,” it would be a mistake to threaten the recovery by cutting the shortfall prematurely. He also said pressure on U.S. state budgets is “diminishing not intensifying” and that he’ll soon outline a plan for the future of U.S.-owned mortgage companies.
Turning abroad, Geithner said some emerging nations could soften their links to the dollar and expressed confidence the euro will be “held together.” Asked if he will remain Treasury secretary in coming years he said, “I’m tempted to say I hope not,” before retreating to his traditional stance that he will serve as long as Obama wants him to.
Geithner met yesterday with chief executive officers of financial companies to discuss progress in implementing regulatory reforms. Attendees included JPMorgan Chase & Co.’s Jamie Dimon, Bank of America Corp.’s Brian Moynihan, Standard Chartered Plc’s Peter Sands and Barclays Plc’s Robert Diamond. Geithner agreed with their request for more clarity on regulation, UniCredit SpA CEO Federico Ghizzoni told reporters after the session at the Morosani Schweizerhof hotel.
“We asked that new rules be clarified and implemented rapidly,” Ghizzoni said. “Geithner agreed with our request for clarity, which is in the interest of the financial system.”
The last U.S. Treasury chief to make the trip to the Swiss Alps was Lawrence Summers in 2000. His three successors in President George W. Bush’s administration proved reluctant to travel the 4,200 miles from Washington.
Geithner needs to appear at such events to maintain foreign demand for U.S. securities as the budget gap swells, said William Browder, chief executive officer of London-based Hermitage Capital Management.
If Treasury secretaries “didn’t feel like coming to Davos before, they need to do so now to continue to sell their bonds,” said Browder.
The recovery in the world’s largest economy has picked up steam since the end of last year, with home sales, industrial production and consumer spending rising. The economy accelerated in the fourth quarter, growing 3.2 percent on the back of the biggest gain in consumer spending in more than four years, the Commerce Department reported today. The median forecast of economists surveyed by Bloomberg News had been for a 3.5 percent expansion.
The improved economic outlook is prompting global investors to increasingly favor the U.S., with 37 percent of respondents to this month’s Bloomberg Global Poll naming it one of their preferred places to invest, up from 23 percent in November. More than half described the U.S. economy as improving, up from a third. Almost two-thirds predicted the Standard & Poor’s 500 index will rise over the next six months.
“The optimism is here,” Jeffrey Joerres, CEO of Milwaukee-based Manpower Inc., said in Davos. “What you are seeing is an extended recovery that is going to stay extended for some time.”
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