Paulson Predicts Signs of `Slower Growth' Ahead

By Kevin Carmichael and John Brinsley

Jan. 7 (Bloomberg) -- Treasury Secretary Henry Paulson said investors remain wary of U.S. markets and that further signs of ``slower growth'' will emerge before the economy shakes off the effects of the housing crisis.

``It will take additional time for markets to regain confidence,'' Paulson said in a speech to the New York Society of Security Analysts today in New York. ``We will likely have further indications of slower growth in the weeks and months ahead.''

The comments come as the Bush administration considers ways to invigorate an economy that some economists say may be on the verge of recession. The U.S. stock market is off to its worst start since 2000 as the housing slump and credit crunch weaken job growth and manufacturing.

Paulson didn't address the prospect of an economic stimulus package directly in his prepared remarks. While acknowledging that growth ``looks to have slowed considerably'' at the end of 2007, Paulson said the economy ``remains resilient'' and that he expects it to ``continue'' to expand.

``Let me be clear that no single policy or action will undo the excesses of the last few years,'' Paulson said. ``President Bush and his administration recognize the risk we face, and the primary importance of keeping the economy as strong as possible as we weather this housing correction.''

Paulson, Federal Reserve Chairman Ben S. Bernanke and the rest of the President's Working Group on Financial Markets met with President George W. Bush on Jan. 4.

Work With Congress

After the meeting, Bush said he will work with Congress to ``do everything we can'' to ensure the economy doesn't slip into a recession. The U.S. economy likely grew at an annual rate of 1 percent in the fourth quarter, according to the median estimate of economist surveyed last month, compared with a 4.9 percent rate in the third quarter.

Paulson, the former head of Goldman Sachs Group Inc., used the speech to assess the state of various capital markets.

He said equity and Treasury markets were functioning ``well.'' The U.S. market for ``high-grade debt'' is ``performing satisfactorily,'' and the ``high yield'' market is ``impaired but operational,'' Paulson said. The asset-backed paper market is showing ``progress,'' he said.

The speech was Paulson's first since a three-state trip last month to promote his plan to ease the subprime mortgage crisis, which includes freezing interest rates on loans to some borrowers. He said he expected mortgage servicers to ``begin fat-tracking borrowers in the next few weeks.''

In the remarks today, Paulson repeated a request that Congress pass legislation toughening oversight of Fannie Mae and Freddie Mac, two government-chartered enterprises that are the country's biggest sources of mortgage financing. With a stronger regulator, Paulson said the administration would back a temporary, higher limit on the size of loans the GSEs are allowed to securitize.