It is probably not the easiest time to be assistant to the president for economic policy.
On the day Keith Hennessey came to breakfast with reporters, a four-column, front-page headline in the Wall Street Journal shouted "Dollar's Dive Deepens as Oil Soars." Earlier in the week, financial pages focused on an accelerating decline in home prices.
Mr. Hennessey, who coordinates White House economic-policy development as director of the National Economic Council, predicted tepid economic growth for the first three months of 2008. He said his "best guess" is that the first quarter of 2008 "will look a lot like" the fourth quarter of 2007. On Feb. 28, the government issued a revised estimate for economic growth in the final three months of 2007, leaving it unchanged at a weak 0.6 percent annual rate.
Federal Reserve interest-rate cuts and congressional passage of a stimulus package that the president recommended, "is going to bump [gross domestic product] a bit in the second quarter and fairly significantly in the third quarter [of 2008]," Hennessey said. "The numbers I have seen are adding something like a point to GDP in the third quarter."
At the Monitor-sponsored session with reporters, Hennessey argued against having Congress pass a second economic stimulus package this year. "The action that was taken was a wise action, give it time to work. We do not anticipate the need at this point in time for additional stimulative policy from the Congress and I don't anticipate a new proposal coming in that regard."
He also argued against providing relief to borrowers who can afford to make mortgage payments but choose not to because they owe more than their home is worth and don't expect real estate values to improve soon. The investment banking firm Goldman Sachs estimates that as much as $3 trillion of mortgages – or roughly one third of the total home loans outstanding – could be underwater by year's end.
"There is the equity question which is that there are a lot of families and a lot of people around the country who are homeowners who have to make very tough trade-off choices every month when they are making their monthly mortgage payment," Hennessey said. "Why is it fair to distinguish among them and say: This group of people we are going to provide financial relief to and this group we are not."
He called the question of how long it takes the housing market to recover "the big short-term question for the economists."
Sens. Hillary Rodham Clinton and Barack Obama have made changing the North American Free Trade Agreement (NAFTA) to better protect American workers a key part of their battle for the Democratic presidential nomination. Hennessey is staunchly opposed to changing the trade deal.
"Obviously, NAFTA was an excellent policy, NAFTA should remain as it is. NAFTA should not be reopened, that is clear," Hennessey said. While largely avoiding political topics at the hour-long meeting with reporters, Hennessey said it was "almost nonsensical to suggest that somehow it is going to be reopened and problems that they are concerned with will be resolved without having to give up something in exchange. And that is how trade agreements work."