WASHINGTON — Put it in the history books: The country was officially diagnosed with a job-killing recession Monday, and woeful new evidence showed it's getting worse. Wall Street convulsed at the news, tanking 680 points, and Washington pledged even more help to try to ease the pain.
With the economic pain likely to stretch well into 2009, Federal Reserve Chairman Ben Bernanke said Monday he stands ready to lower interest rates yet again and to explore other rescue or revival measures.
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Rushing in reinforcements, Treasury Secretary Henry Paulson, who along with Bernanke has been leading the government's efforts to stem the worst financial crisis since the 1930s, pledged to take all the steps he can in the waning days of the Bush administration to provide relief. Specifically, Paulson is eyeing more ways to tap into a $700 billion financial bailout pool.
On Capitol Hill, House Speaker Nancy Pelosi, D- Calif., vowed to have a massive economic stimulus package ready on Inauguration Day for President-elect Barack Obama's signature.
That measure — which could total a whopping $500 billion — would bankroll big public-works projects to generate jobs, provide aid to states to help with Medicaid costs and provide money toward renewable energy development. Crafting such a colossal recovery package would be a Herculean feat: Congress convenes Jan. 6, giving lawmakers just two weeks to complete their work if it is to be signed Jan. 20.
President George W. Bush, in an interview with ABC's World News, expressed remorse about lost jobs, cracked nest eggs and other damage wrought by the financial crisis. "I'm sorry it's happening, of course," said Bush. The president said he'd back more government intervention.
None of the pledges for more action could comfort Wall Street investors. The Dow Jones industrials plunged 679.95 points, or 7.70 percent, to close at 8,149.09.
It was another white-knuckle day, punctuated by grim economic reports. An index of manufacturing activity sank to a reading of 36.2 in November, a 26-year low, the Institute for Supply Management reported. Construction spending fell by a larger-than-expected 1.2 percent in October, the Commerce Department said.
Adding to the gloom, the National Bureau of Economic Research, a group of academic economists, concluded Monday that the country has been suffering through a recession since December 2007.
With the NBER's decision, the United States has fallen into two recessions during Bush's eight years in office. The first one started in March 2001 and ended in November of that year.
The economy jolted into reverse in the final three months of last year. After a short spring rebound, it contracted again in the summer. Economists say it is still shrinking and will continue to do so through at least the first quarter of next year.
Unlike past recessions, consumers are bearing the brunt of this one. Clobbered by job losses, hard-to-get credit and hits to their wealth from sinking home values and plunging portfolio investments, consumers have cut back sharply on their spending, throwing the economy into chaos.
Watching customers' appetites wane, employers have throttled back on hiring. The unemployment rate in October zoomed to 6.5 percent, a 14-year high. So far this year, 1.2 million positions have disappeared. The jobless rate is likely to climb to 8 percent or higher next year.
Against that backdrop, many economists think the current recession will be the worst since the 1981-82 downturn.
To help ease the pain, Bernanke said additional interest-rate cuts are "certainly feasible," but he warned there are limits to how much such action would revive the economy, which is likely to stay mired in weakness well into next year.
The Fed's key interest rate now stands at 1 percent, a level seen only once before in the past half-century. And many economists predict Bernanke and his colleagues will drop the rate again at their next meeting Dec. 15-16.
The Fed can lower its key rate only so far — to zero — and that's getting ever closer. Given that constraint, Bernanke said there are other ways to bolster economic activity.
The Fed, for instance, could buy longer-term Treasury or agency securities on the open market in substantial quantities, he said. This might lower rates on these securities, "thus helping to spur aggregate demand," Bernanke said.
Because the Fed can go only so low in reducing interest rates, the central bank over the past year has resorted to a flurry of other radical and often unprecedented actions with the hope of busting through credit jams and getting financial markets operating more normally.
The bracing impact of the Fed's aggressive rate reductions, however, has been somewhat stymied by the credit and financial crises, Bernanke said. Despite lower borrowing costs, skittish banks have been reluctant to lend money to people and businesses, a vicious cycle that has seriously hobbled the U.S. economy.
"Even if the functioning of financial markets continues to improve, economic conditions will probably remain weak for a time," Bernanke warned.
Paulson, meanwhile, has been working closely with the incoming administration, including New York Fed President Timothy Geithner, Obama's pick to be the next treasury secretary, to pave the way for a smooth transition.
"We are actively engaged in developing additional programs to strengthen our financial system so that lending flows into our economy," Paulson said, referring to tapping the $700 billion bailout fund. "When these programs are ready for implementation, we will discuss them with the Congress and the next administration," he added.
Paulson did not provide specifics on what type of programs the administration was weighing, other than to say that it was looking at ways to boost capital injections into financial institutions.