President Bush and his team have tried to talk up the US economy this week by injecting optimism into what has recently been a highly uncertain picture. A tame seminar at Waco in Texas coincided with the monthly meeting of the Federal Open Market Committee, which decided to leave interest rates unchanged at 1.75 per cent, a 40 year low.
Sluggish growth and collapsing confidence as a result of many business scandals have highlighted the weakness of Mr Bush's economic team. Politically he has to overcome this problem in time for the forthcoming mid-term Congressional elections. In Ireland and elsewhere eyes are turned anxiously to how he fares, in fear of a "double dip" recession which could have damaging worldwide consequences.
Mr Bush has taken a forward role on the economy to compensate for the shortcomings of his executive colleagues. They have not provided firm leadership during recent months, as reduced growth was followed by the accounting scandals at Enron, Arthur Andersen and WorldCom and difficulties faced by airline and high technology companies after the September 11th events. The message is repeatedly upbeat about prospects that recovery in consumer demand will drive the rest of the economy in the last two quarters of the year. Mr Bush sticks by his tax cutting plans, insisting they will stimulate activity. He is less vocal about looming budgetary deficits after the Clinton era surpluses; but he expects to rally support for the steep increases in defence and security spending, chiding the Democrats for resisting them.
The fate of the US economy and the course of this business cycle have become politically determined to an unusual degree as a result of these developments. This was illustrated in yesterday's market rallies on news that executives of major companies have sworn in on the validity of their financial results - a direct result of new regulatory legislation passed by Congress. This is despite the Bush administration's ideological stance that there is little it can or should do to alter market realities. Given the failure of his father to react rapidly enough to the turn-around in US economic fortunes 10 years ago, which cost him the 1992 presidential election despite victory in the Gulf War, Mr Bush is determined not to repeat the mistake. Would another war against Iraq not do just that?
Economists worry that, confronted by low growth and investment, depressed markets and the failure of its economy to respond to such historically low interest rates the US may be approaching a "liquidity trap" similar to that of Japan's, in which further rate cuts will make no difference and fiscal policy is too slow to stimulate a recovery. Some of the shine is coming off the reputation of Mr Alan Greenspan, chairman of the Federal Reserve, now that markets have reversed their phenomenal growth of the 1990s. Mr Bush says the real economy is strong. He needs to be much more adept at cultivating it.