WASHINGTON – Gyrating stock prices. Shrinking nest eggs. Spiking foreclosures on home mortgages. Worries that credit will dry up. It's a high-wire balancing act for the Bush administration's top economic officials as they cope with Wall Street's recent turbulence and the fears and uncertainties left in its wake.
While acknowledging the turmoil, policymakers are seeking to project a calming confidence that the country's economic health is fundamentally solid, and the economy will eventually make its way safely through the choppy waters. They're being careful not to make the problems sound worse than they are, which could spread panic and aggravate the situation. At the same time, they don't want to sound too much like a cheerleader, which can undermine credibility.
"It is a very delicate dance," said Richard Yamarone, economist at Argus Research. "They definitely want to send a message they are watching. But they don't want to overdo it," he added.
The carnage on Wall Street last week left the Dow Jones industrials down more than 585 points, its worst week in five years. The culprit: investors' heightened anxiety that troubles in the housing and home-mortgage markets could spread. Anxiety lingered Monday even as the Dow finished the day up 92.84 points.
Treasury Secretary Henry Paulson was measured and reassuring in his comments Friday, one day after the Dow suffered its second-biggest loss of 2007.
"Step back, because ... when there are big adjustments in markets based upon economic fundamentals, that's one thing; but when you have economic fundamentals that are strong, that's a better place to be," Paulson said as he urged investors and others to take a big-picture look at the situation.
Paulson called the market turbulence a "wake-up call" to investors to re-examine their degree of risk. "There were excesses in the system. ... We need to see more discipline" among some borrowers and lenders, he said.
Yet, Paulson stressed that the economy's fundamentals remain solid. "I take comfort from the underlying economic strength," he said.
Before he took over the Treasury helm last year, Paulson was chief of the financial powerhouse Goldman Sachs, where he earned the respect of Wall Street. "Listen, I've been watching markets for a long time. It's my job to be vigilant, so I'm watching these markets carefully," he told reporters.
Commerce Secretary Carlos Gutierrez, meanwhile, has highlighted the economy's resilience. Even amid the housing market's woes, economic growth rebounded in the spring at a 3.4 percent pace, the best in more than a year. And, the employment climate remains sturdy.
Economists thought Paulson and Gutierrez struck the right tone.
It's important to "maintain a posture of concerned confidence, where you don't pretend like nothing is happening but on the other hand you don't seem so overly excited about it that you incite panic," said Carl Tannenbaum, chief economist at LaSalle Bank.
Federal Reserve Chairman Ben Bernanke, meanwhile, has been publicly mum on the markets' latest problems thus far.
"From the Fed's point of view, the less said the better," said Stuart Hoffman, chief economist at PNC Financial Services Group. "I don't think it has reached the level of intensity or threat to the fundamental economy that the Fed ought to be saying much about it," Hoffman said.
Hoffman and most other economists believe Fed policymakers will keep a key interest rate steady when they meet next week. The Fed's rate has stood at 5.25 percent for just over a year.
Many economists continue to believe that the Fed will leave rates where they are for most — if not all — of this year. However, if inflation were to recede and economic growth were to falter, some economists said there's a chance the Fed could cut rates at the end of this year.
When Wall Street took a nosedive in late February and suffered its worst sell-off since the 2001 terrorist attacks, Bernanke one day later used a Capitol Hill appearance to offer a calm assessment of the situation.
Fed officials, he said then, were carefully monitoring the situation but had not seen anything worrisome in how the market had dealt with the sudden decline. It was Bernanke's first market crisis since taking over at the Fed a year earlier. Lawmakers, economists and investors gave him good marks for his handling of the situation.
Delivering the Fed's midyear economic report to Congress earlier this month, Bernanke went out of his way to address the pain the housing slump was causing.
Foreclosures have climbed to record highs as rising interest rates and weak home prices have clobbered some homeowners. Dozens of mortgage lenders dealing in higher-risk home loans to people with poor credit histories have been forced out of business.
"The recent rapid expansion of the subprime market was clearly accompanied by deterioration in underwriting standards and, in some cases, by abusive lending practices and outright fraud," Bernanke told Congress. "In addition, some households took on mortgage obligations they could not meet, perhaps in some cases because they did not fully understand the terms. Financial losses have subsequently induced lenders to tighten their underwriting standards," he said. "Nevertheless, rising delinquencies and foreclosures are creating personal, economic and social distress for many homeowners and communities — problems that will likely get worse before they get better," he warned.
Still, Bernanke expressed hope that those problems wouldn't spread seriously through the financial system and the economy at large.
Sen. Robert Menendez, D-N.J., welcomed Bernanke's insights. "I think Americans from all walks of life are affected when the market has a dip, by external pressure on prices, by poor investment. ... I think your presence here is especially important ... because it brings a discussion of the economy onto the front pages and into the homes of Americans across the country."