 The US Treasury Secretary sees tough times ahead |
US Treasury Secretary Hank Paulson has admitted that the US economy is facing a "sharp decline" at the moment but hoped for a recovery later in the year.
The news comes after the US central bank, the Federal Reserve intervened to rescue troubled bank Bear Stearns, providing $30bn in emergency support.
Mr Paulson said that he did not believe investors saw the move as a bail-out.
The Fed is expected to slash interest rates later on Tuesday to help boost confidence in financial markets.
Meanwhile, two other leading Wall Street banks reported sharply reduced profits for the first three months of the year.
Goldman Sachs posted earnings of $1.5bn, while Lehman Brothers, whose shares had fallen sharply on Monday, earned $489m, or 60% less than in the same period last year.
But the numbers were not as bad as expected, lifting Wall Street shares.
The benchmark Dow Jones stock index jumped more than 230 points, or almost 2%, to 12, 209.3. The wider Standard & Poor's index and technology-dominated Nasdaq also rose.
More rate cuts
 |  We know we're in a sharp downclimb and there's no doubt that the American people know that the economy has turned down  Hank Paulson, US Treasury Secretary  |
Economists are forecasting that the benchmark US interest rate will be cut by up to one percentage point from 3% to 2%. The decision will be announced at 1815 GMT (1415 EST).
It would be the fifth rate cut since the credit crunch started.
Mr Paulson has been touring the US breakfast television studios in an attempt to reassure markets and consumers about the economic situation.
"We know we're in a sharp downclimb and there's no doubt that the American people know that the economy has turned down," he said.
He said that policy was focused on calming the financial markets.
"The big focus on the part of all policy makers is to minimise the spillover to the real economy," he added.
Slowing economy
Mr Paulson declined to use the word recession to characterise the US economy, but recent polls of both economists and the public have revealed that they disagree.
The latest economic figures to suggest a sharp slowdown were the industrial production figures, published on Monday, which fell by 0.5% in February.
US job growth was also negative in February, but Mr Paulson said he expected the economic package and further rate cuts to lead to 500,000 more jobs this year.
But the Fed also faces worrying pressures over inflation.
US producer prices, released on Tuesday, rose by 0.3% in February compared to the month before, but a key measure of producer core inflation rose by 0.5%, the fastest pace in well over a year.
| MAIN SUB-PRIME LOSSES SO FAR Citigroup: $18bn Merrill Lynch: $14.1bn UBS: $13.5bn Morgan Stanley $9.4bn HSBC: $3.4bn Bear Stearns: $3.2bn Deutsche Bank: $3.2bn Bank of America: $3bn Barclays: $2.6bn Royal Bank of Scotland: $2.6bn Freddie Mac: $2bn JP Morgan Chase: $3.2bn Credit Suisse: $1bn Wachovia: $1.1bn IKB: $2.6bn Paribas: $197m Source: Company reports |
The US Federal Reserve has been trying to restore confidence in the banking business.
It has already cut interest rates from 5.25% to 3% since mid-September in a bid to boost the economy.
Banks have been unwilling to lend to each other because they are worried about losses on investments backed by US mortgages.
Those investments have been hit by the slump in the US housing market.
New figures showed that housing starts and building permits fell, the latter to the lowest annual rate since 1991.
"The housing industry is in a recession," said Josh Stiles, bond strategist at IDEAGlobal.
"There is no reason for the Fed not to be aggressive," said Mark Zandi, chief economist at Moody's Economy.com.
"The economy is in a recession, the financial system is in disarray and inflation is low," he added.
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