Paulson again downplays credit crisis, expects continued economic growth

WASHINGTON (Thomson Financial) - Just days after the Federal Reserve cut key interest rates in a move to calm the shaky credit and equity markets, US Treasury Secretary Henry Paulson continued to downplay the crisis, telling members of Congress that the US is poised for continued economic growth.

"US economic fundamentals are healthy: unemployment is low, wages are rising and core inflation is contained," Paulson told the House Financial Services Committee today. "Although the recent reappraisal of risk, coupled with weakness in the housing sector, may well result in a penalty, the fundamentals point to continued US economic growth."

Paulson has said previously that the August credit crunch will act as a penalty on growth, but that the US is not headed toward recession.

Paulson added that unlike previous market downturns, turbulence in the markets over the last few weeks was not caused by problems in the "real economy," and instead reflected "excesses in the credit markets."

He also downplayed problems in the subprime mortgage market, saying that US home ownership has increased over the last decade and that home ownership in general is not threatened.

"Even in the current environment, the vast majority of new homeowners will not have difficulty keeping their homes," he said.

The Treasury Secretary also reiterated that borrowers struggling to keep up with their mortgage payments should contact their lenders and try to reschedule their payments. The Bush administration last month encouraged lenders to work out new schedules for some borrowers, and Paulson today asked members of Congress to deliver this message to their constituents.

He also warned that while many subprime borrowers are falling behind, "some prime borrowers with solid credit histories are also struggling."