U.S. seeks to calm investors in face of market drop
By Donna Smith
WASHINGTON, Aug 31 (Reuters) - U.S. officials sought to reassure nervous investors about the economy after Monday's huge stock market fall as a business group and lawmakers called for interest rate cuts to counter global financial turmoil.
U.S. Treasury Secretary Robert Rubin, speaking to reporters after the Dow Jones Industrial Average suffered its second biggest point drop ever, said prospects for the U.S. economy remain strong.
He declined to comment directly on Monday's 512.61 point drop in blue chips, a 6.37 percent decline and one of the worst in history. But he was in close touch with President Bill Clinton and Federal Reserve Chairman Alan Greenspan as well as other Group of Seven major industrial nations.
''The world is currently working its way through a difficult period,'' Rubin said. ''The fundamentals of the United States economy are strong due in part to the sound policies we've followed. The prospects for growth, low inflation, low unemployment continue to be strong.''
Rubin singled out Japan, the world's second largest economy, to say it was particularly important it take steps to end recession and boost growth to revive the struggling economies of Asia.
Rubin was in Washington as most of the rest of Clinton's economic team were aboard Air Force One on their way with the president for a summit in Russia, whose political and economic turmoil sparked a global stock market sell-off.
The treasury secretary interrupted a briefing Clinton's economic and national security aides were giving to reporters to seek presidential permission to issue a statement in response to Monday's stock market fall.
At the same time a presidential working group of top U.S. financial regulators whose job it is to monitor unusual volatility in U.S. financial markets conferred by telephone conference call, a U.S. official said.
''My understanding is that there was a conference call at the deputies level,'' said the official, referring to the President's Working Group on Financial Markets. The group includes the Commodity Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC), the Treasury Department and the Federal Reserve.
The official declined to offer further details on the call.
The influential National Association of Manufacturers (NAM) called on the Federal Reserve to quickly lower interest rates to give the U.S. economy an added boost and counter the impact of financial turmoil in Russia and Asia.
''Interest rates are a dangerous drag on the economy in view of the fact that a third of the world economy is in recession,'' NAM President Jerry Jasinowski said in a statement.
''Asia is suffering due to a lack of foreign exchange and Russia's currency is plunging,'' he added. ''Major South American nations are in a volatile economic state. These regions need liquidity before they can regain stability. That means readier access to American capital, which, in turn, means lower interest rates.''
The group called on the Fed to act no later than the Sept. 29 meeting of the Federal Open Market Committee, the policy-making arm of the central bank.
In Congress, Joint Economic Committee Chairman Rep. Jim Saxton, a New Jersey Republican, said it was time for the Fed to heed calls for lower rates.
''An interest rate cut would be a reasonable response to current economic developments,'' Saxton said. ''There is no sign of inflation currently or for the foreseeable future.''
Wall Street economists began calling for the Fed to cut rates last week when Russia's financial meltdown spilled over into U.S. stock markets, threatening to undermine the U.S. economic expansion that is now in its eighth year.
U.S. Chamber of Commerce chief economist Martin Regalia said the Fed was unlikely to lower rates for international reasons, but that Monday's stock market tumble coupled with drops in the past few weeks will hurt domestic spending and that would likely spark a rate reduction.
''I think this is the thing that gives the Fed room to maneuver,'' Regalia said. The Fed could make an early ''preemptive'' move to keep the economy from deteriorating.
National Association of Home Builders economist David Seiders said he has revised his economic forecasts to show the Fed easing credit starting early next year, but said the Fed could move before then if things get worse.
''All of the complications for the U.S. economy are now in the international side,'' Seiders said. ''If the market continues to tumble then I think the Fed would definitely step in. They did it in 1987.''
The Fed moved quickly to lower rates to provide liquidity to the financial system in 1987 when the Dow Jones Industrial Average lost more than 20 percent of its value in one day.
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Regards, Jeff
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