WASHINGTON (AFX) - Treasury Secretary Paul O'Neill said U.S. economic growth is hovering near zero, and said it is now up to Congress to act quickly enough on a tax cut to avoid a serious downturn.
"I think that we're hovering around a zero rate of growth," O'Neill said in a television interview.
"At the end of the day whether we're going to give the American people an insurance policy that holds out the prospect that we're not going to have a deep recession is in the hands of the Congress," O'Neill said.
O'Neill said U.S. GDP growth is currently hovering between minus 0.5 pct and 0.5 pct, adding that "the important thing is what happens over the next couple of months."
Advocating quick passage of President George W. Bush's 1.6 trln usd ten-year tax cut plan in the legislature, O'Neill explained the gap between now and its approval will determine "whether we get it done early enough to avoid a serious downturn."
O'Neill said he hopes Congress does not "take nine months" to pass the tax cut, and forecast that indeed it will act quickly.
With passage of the tax cut "people would see relief coming, and they would know that they're going to be able to pay their credit card bills ... and we could rekindle the basis for another consumer-led growth period," O'Neill said.
O'Neill noted that the debate on tax cuts has advanced quickly over the past two months, to the point where the current question is the size and composition of the final bill, and not whether there will be one.
Monetary policy is also helping to stimulate the economy, but O'Neill said he favors a "belt and suspenders" approach, viewing fiscal stimulus through tax cuts as an insurance policy.
O'Neill noted the Federal Reserve has enacted two "relatively large" interest rate cuts over the past several weeks, and said it needs to be relaxing policy.
Fed Chairman Alan Greenspan can have "a great influence in sending a message," O'Neill said, adding that monetary policy is also a tool to send a message to financial markets.
But monetary policy is unable to help send money to consumers, to deal with high energy costs and credit card debt, O'Neill explained. Noting that Democrats are seeking a smaller tax cut, while some Republicans want a larger one, O'Neill said Bush's plan is the "Goldilocks tax proposal," because it is the just-right approach.