Paulson: Growth more worrisome than inflation

Treasury chief says downturn is his top concern

Treasury Secretary Henry Paulson said there's a strong possibility the US economy will pick up soon. (Simon Dawson-Pool/Getty Images)

LONDON - Treasury Secretary Henry Paulson said he is more concerned about the ailing US economy than the threat of higher inflation.

"Our biggest concern is the downturn," he said yesterday in a radio interview with the British Broadcasting Corp. "There's no doubt that high headline inflation numbers are a real concern to Americans, but core inflation is relatively contained and my biggest focus today is on the downside risks, which are housing, oil prices, and what is going on in the capital markets."

Paulson's focus on slow growth indicates he's less concerned about inflation than some officials at the Federal Reserve.

The Federal Open Market Committee last week kept the benchmark US interest rate at 2 percent, saying in a statement that "upside risks to inflation and inflation expectations have increased."

On July 1, Atlanta Fed president Dennis Lockhart said consumer prices are rising faster than he wants and the Fed should act "decisively" against any sign of expectations for higher inflation.

Paulson's remarks came before the Labor Department in Washington said the world's largest economy lost 62,000 jobs in June, and the jobless rate held at 5.5 percent, the highest since October 2004.

"We have strong economic fundamentals in the US," Paulson said in the news conference with British Chancellor of the Exchequer Alistair Darling.

"There is a strong possibility that we will be growing at the end of the year - that we will have stronger growth at the end of the year than we have now."

After four days of talks in Moscow, Berlin, and London, the Treasury chief repeated his view that oil prices are a "headwind" that may prolong the slowdown.

"The capital markets turmoil is going to take a while also" and "this housing correction is going to be going on for some time," Paulson said.

Paulson laid out plans Wednesday to overhaul regulation of financial markets, saying that the near-collapse of Bear Stearns Cos. in March illustrates the need for the system to allow firms to fail without causing widespread economic damage.

At yesterday's news conference, Paulson said Congress should decide which government agency receives expanded powers to cope with failing securities firms.

"I laid out principles," he said. "In terms of picking an agency to have the responsibility, that is something that's going to require more thought, and I think that is something where Congress is going to make the decision."