WASHINGTON — The worst of the nation's credit crisis may have passed, Treasury Secretary Henry Paulson said Wednesday, though he acknowledged rising gas prices will blunt the effect of 130-million economic stimulus checks.
He also ruled out a second stimulus package for now.
Paulson said the turmoil that has gripped Wall Street and that took a turn for the worse again in March has eased somewhat. "There's progress," he said. "I think we're closer to the end of this" than to the beginning.
A prolonged housing slump, a severe credit crisis and soaring energy costs have pushed the economy to the edge of a recession. To help cushion the blow, the Bush administration and Congress speedily enacted a $168-billion stimulus package of tax rebates for people and tax breaks for businesses. The first batch of rebate payments started hitting bank accounts last week through direct deposits.
On Wednesday, oil futures extended their seemingly relentless advance, rising to a new record near $124 a barrel as investors captivated by the market's upward momentum looked past the government's report of an increase in crude and gasoline supplies.
Light, sweet crude for June delivery hit a new trading record of $123.93 in after-hours activity on the New York Mercantile Exchange after settling up $1.69 at a record close of $123.53 a barrel.
The surge in crude futures helped send the Dow Jones Industrial Average down 206.48, or 1.59 percent, to close at 12,814.35. Broader stock indicators also declined. The S&P 500 fell 25.69, or 1.81 percent, to 1,392.57, and the Nasdaq composite index fell 44.82, or 1.80 percent, to 2,438.49.
"Obviously, the high price of gasoline is unwelcome and is a challenge," Paulson said. "We will get some help from the stimulus. Later this year, I expect growth will pick up." Still, he acknowledged that the country was facing "tough times" as people struggle with soaring gasoline prices, higher medical costs and a weak jobs market.
Paulson said the steep slump in housing, which has depressed home sales and prices, remained "the biggest risk to the economy." Although he said he didn't know when the worst of housing's problems will pass, he suggested there will still be strains in the months ahead.
Even though the markets are "somewhat calmer now," Paulson said large portions of the credit markets — ranging from mortgages to student loans to loans that banks make to each other — still are not functioning normally. "I wouldn't be surprised at all to see more bumps in the road," he said.
Paulson rejected for now the notion of a second stimulus bill, including such things as extending unemployment benefits, an idea pushed by Democrats in Congress.
He said it would be unprecedented to extend unemployment benefits from the current 26 weeks with unemployment at the relatively low level of 5 percent.