WASHINGTON — President Obama, walking a fine line between optimism and caution, said Friday that there were "glimmers of hope" for the economy but warned that substantial, potentially difficult government action was still necessary to ensure a healthy recovery.
"We are starting to see progress," Obama said after huddling with senior members of his economic team at the White House. But he warned that the country must not "flinch" at the difficult steps to come.
Behind the president's words is a growing consensus among economists that, despite signs that the nation's financial picture is improving, major new government aid is still needed if the nation is to avoid prolonged economic anemia.
As the rescue effort stretches to include banks, auto companies and insurance companies, it will require many billions of dollars more in bailout funds, especially for the financial system, these experts say -- money that Congress and a recession-weary public may be in no mood to approve.
What's more, the government's finances are increasingly strained by the recession. The Treasury Department said Friday that lower tax revenue and rising payouts for jobless benefits had driven the federal deficit close to $1 trillion for the first six months of the current fiscal year.
Some analysts say that unless banks and other financial institutions have enough capital to play a robust role in extending credit, the economy could be stuck in neutral for months or years more.
Economist Anil Kashyap, a banking expert at the University of Chicago's Booth School of Business, said the government couldn't afford to lapse into half-measures just because the economy and the stock market were showing signs of life. That means calling on Congress to approve a big new aid infusion.
"They're going to get one more shot" with Congress, Kashyap said. "They need to worry about whether the funding will dry up."
In his meeting Friday, Obama got a progress report on the "stress tests" being conducted on the nation's 19 largest banks, an effort the administration has said is a key first step in determining how much more money the ongoing bailout will require to help banks survive if the economy takes more bad turns.
Officials have not disclosed the results of the tests, but there have been some indications that they believe the capital shortfall may not be quite as large as had once been feared.
