Transcripts

The Housing Crisis Leads To More Consumer Concern

SUSIE GHARIB: The problems in housing and the mortgage market are troubling more than just Citibank. Retail sales declined an unexpectedly large four- tenths of a percentage point in December. As Stephanie Dhue reports, it's clear that consumers are feeling pinched.

STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Rising prices for energy and falling home values around the country slowed down the ka-ching at the cash register last month and economist Kathryn Kobe expects consumer spending to weaken further in the first quarter.

KATHRYN KOBE, ECONOMIST, ECONOMIC CONSULTING SERVICES: It does look like the consumer may be considering retrenching a little bit or at least slowing their spending rate quite a bit, as they evaluate how safe their job is, what their income looks like, what their house is worth. There's a lot of things out there for them to consider.

DHUE: With all these things weighing on consumers, Fed Chairman Ben Bernanke has signaled the Fed will cut interest rates at its meeting later this month. The Fed also pumped $30 billion into the banking system yesterday. Global Insight economist Brian Bethune likes where the Fed is headed.

BRIAN BETHUNE, ECONOMIST, GLOBAL INSIGHT: The Fed is moving in the right direction and it's going to help. The big key question is whether that will have any impact in terms of reducing the risk of recession and I think that it will. The policy response right now is key. It has to be prompt and it has to be fairly significant.

DHUE: The policy response will heat up as Congress and President Bush return to Washington next week. The Fed chairman has already met with House Speaker Nancy Pelosi about a fiscal stimulus plan. In the meantime, there is speculation weak economic reports could push the Federal Reserve to cut rates by 75 basis points. But economist Dean Baker says, while that steep a cut could be justified, it could also be viewed as a panic move.

DEAN BAKER, CO-DIRECTOR, CENTER FOR ECONOMIC POLICY & RESEARCH: The Fed will want to present the image of being very secure and confident, so I think he would be very hesitant to make that large a move.

DHUE: The president and lawmakers have signaled that an economic stimulus package will be a top priority in the coming weeks. But it's uncertain how quickly any stimulus plan can be approved and put into the economy. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.