Paulson says markets are 'calmer,' ready to expand

WASHINGTON - In a speech to business executives in Washington, Treasury Secretary Henry Paulson said yesterday that financial markets were "considerably calmer" now than they had been two months ago. He predicted that the economy could begin rebounding by the second half of this year.

Paulson said the drag from housing, which he characterized as still the biggest risk to the economy, would soon be lessened by nearly $100 billion in economic stimulus payments to U.S. households.

"The fiscal stimulus will provide support to the economy as we weather the housing correction, capital markets turmoil, and higher energy and food prices," Paulson said in his prepared remarks.

The economy has been pushed to the brink of a recession by a prolonged housing slump, a credit crisis, soaring energy prices and more than a quarter-million job layoffs during the last four months.

In his remarks, Paulson never used the word

recession

, although many private economists believe the country is in one.

But he did forecast that the stimulus checks going to 130 million households would help spur growth in the second half of the year. He said the checks, along with business tax breaks in the $168 billion stimulus package, would add 500,000 jobs by the end of the year over what would have been created without the stimulus boost.

"Although we are still working through housing and capital markets issues, and expect to be doing so for some time, we also expect to see a faster pace of economic growth before the end of the year," he said.

Paulson said that both the ability to obtain loans and investor confidence were gradually improving, raising hopes that the financial market crisis that hit last August was beginning to recede.

Also yesterday, Federal Deposit Insurance Corp. Chair Sheila Bair said anti-foreclosure proposals in Congress have "limitations" as she urged "more immediate" solutions to address the worst housing slump in a quarter century, Bloomberg News reported.

In a Washington speech yesterday, she repeated her proposal to have the Treasury Department loan as much as $50 billion to help homeowners pay down as much as 20 percent of the balance on their mortgages.