Obama Says Economy Hitting `Headwinds' From Europe

(Bloomberg)

President Barack Obama said after meeting with Federal Reserve Chairman Ben S. Bernanke that the U.S. economy is strengthening even as it faces “headwinds” from the European debt crisis.

“We have seen some very positive trends in a number of sectors,” Obama said at the White House after a meeting with his economic advisers. “Unfortunately, because of the troubles we’ve seen in Europe, we’re now seeing some headwinds and skittishness and nervousness on the part of the markets.”

Bernanke, who joined the president for the daily economic briefing, said he and Obama talked about how the U.S. economy is being affected by events in Europe, without elaborating. They met as a plunge in global stocks pushed the Standard & Poor’s 500 Index to its lowest close since October and three days before a government report is forecast to show the economy lost jobs for the first time this year.

Obama returned June 27 from a summit of the Group of 20 nations, where leaders agreed on a target for advanced economies to at least halve deficits by 2013 and stabilize their debt-to- output ratios by 2016.

“What’s happening around the world in emerging markets, in Europe, affects us here in the United States, and it’s important for us to take that global perspective as we discuss the economy,” Bernanke said.

The Federal Reserve last week renewed a pledge to keep its benchmark interest rate near zero for an “extended period” and signaled that Europe’s debt crisis may harm growth in the U.S.

Record Low Rates

The central bank has few options left to boost the economy after cutting borrowing costs to a record low in December 2008 and pumping some $1.6 trillion into the financial system through asset purchases, a strategy known as quantitative easing. The Fed ended the purchases in March.

“I think it’s unlikely that the Fed will have to renew its quantitative easing, but it’s certainly not out of the question,” said former Richmond Fed President J. Alfred Broaddus. A “very weak” jobs report for June might push the Fed in that direction, he said.

Payrolls probably fell by 115,000 this month, reflecting a drop in federal census workers as the decennial population count began to wind down, according to the median forecast in a Bloomberg News survey of economists before a July 2 Labor Department report. Private employment probably rose for a sixth month.

Economy ‘Strengthening’

While there remains work to do on the U.S. recovery, Obama said he and Bernanke share “the view that the economy is strengthening, that we are into recovery.”

Obama said that in the U.S., there is “great concern about the 8 million jobs that were lost” since the recession began in December 2007.

Economic growth, jobs and mounting government debt will be among the top issues in November’s congressional elections. Obama is urging Congress to act on measures to boost lending and give tax breaks to small businesses to encourage employment.

The Conference Board’s confidence index slumped to 52.9 this month from a revised 62.7 in May, figures from the New York-based private research group showed today. The gauge was lower than all projections in a Bloomberg News survey of 71 economists.

Treasury Yields

Ten-year Treasury note yields dropped below 3 percent for the first time in more than a year as the confidence data, combined with Conference Board figures showing China’s economic outlook improved less than previously estimated, added to concern the global economy is slowing.

The yield on the 10-year note fell to 2.95 percent from 3.02 percent yesterday. The S&P 500 Index slid 3.1 percent to 1,041.24.

Also attending today’s meeting were Treasury Secretary Timothy F. Geithner, Lawrence Summers, director of Obama’s National Economic Council, budget director Peter Orszag and Fed Governor Donald Kohn.

Obama also said winning passage of sweeping legislation to overhaul financial regulations is vital to continued economic stability.

“Not only will completion of the financial regulatory reform bill provide some certainty to the markets, but it also ensures that consumers will be protected like never before,” Obama said.

Republican Support

The death yesterday of West Virginia Democratic Senator Robert Byrd, and Wisconsin Democrat Russell Feingold’s refusal to back the final package mean Obama will need some Republican support to obtain the 60 votes necessary push the measure ahead.

“I think there will be enough interest in moving reform forward, we will get this done,” Obama said.

The administration’s effort suffered another blow today when Massachusetts Senator Scott Brown, a Republican who previously backed the regulatory-overhaul bill, withdrew his support because House and Senate negotiators inserted a $19 billion fee on banks and hedge funds. That wasn’t in the Senate version of the bill, and the issue may be revisited by congressional negotiators.

To contact the reporter on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net