ECONOMY NEEDS MORE THAN REBATE AND RATE CUT !

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The Fed this week sharply cut interest rates as a way to shore up investor confidence. Congress and the White House are rushing to assemble an economic stimulus package that would put tax rebates into consumers' hands.

While these are welcome moves, they're not a cure that strengthens the country's economic foundation. And, it will take time for the emergency actions to ripple through the economy.

So brace yourself for a rough ride over the next few years. Financial markets will continue to be volatile. Recession is still a real possibility. And many of the U.S. economy's underlying ills - such as a slumping housing market, credit crunch, excessive debt and a dysfunctional financial system - have yet to do their worst damage.

It's clear that despite the twin actions of Fed rate cuts and fiscal stimulus, the U.S. economy will remain on perilous footing. In the U.S. economic house, the Fed's rate drop is tantamount to reinforcing the walls. And the tax package is like slapping on a coat of paint. Neither fixes the shaky foundation.

In the short term, it was both reassuring and scary to see the Fed slash its benchmark lending rate 0.75 percent Tuesday. A rate cut had been expected. But its announcement between regular Fed meetings - and its sharpness - were surprising.

The interest rate move, which marked the biggest single-day rate cut on record, will eventually make mortgages, car loans and other forms of credit cheaper and more readily available to consumers and businesses.



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But the emergency rate cut left the Fed with less room to maneuver as it navigates between easing credit and fighting inflation.

Meanwhile, it's nice to see a rare outbreak of bipartisanship in Washington, where the Bush administration and congressional leaders are cooperating to come up with a $145 billion stimulus package by mid-February. The anemic economy could use this one-time spending boost from tax rebates and tax breaks.

Congressional Democrats must press Bush administration officials to make the package as broad and strong as possible. Much of the rebate money, expected to be $800 for individuals and $1,600 for married couples, should flow to low- and middle-income people.

They are the most likely to need and spend the money quickly.

The package also should boost or extend unemployment benefits, food stamps, and other assistance for the needy. And it should not leave out the poorest Americans who don't make enough money to pay income taxes at all.

Overall, the recent developments only underscored the fragility of the U.S. economy, and its fundamental woes: a troubled real estate market, tighter credit, high oil prices and slowing job growth.

The nation faces a tough slog ahead as the economy pays the price for the housing and credit bubbles of recent years.

Policy-makers must address the deep problems in the U.S. financial system, including unhealthy mortgage lending practices, instability among banks and other financial institutions exposed to the real estate crisis and heavy U.S. debt bankrolled by foreign investors.

The Fed, White House and Congress have taken the first steps to stabilize the markets and the economy. But the heavy lifting will be in tackling these fundamental problems.



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