Stimulus Talk Yields to Calls to Cut Deficits

On Tuesday June 8, 2010, 9:08 pm EDT

WASHINGTON — At a moment when many economists warn that the American economic recovery is likely to be imperiled by prolonged high unemployment and slow growth, President Obama is discovering that the tools available to him last year — a big economic stimulus and action by the Federal Reserve — are both now politically untenable.

The mood in both parties of Congress has turned decidedly anti-deficit, meaning that the job-creation programs once favored by the White House and Democratic leaders in Congress have been cut back, then cut again. It is a measure of the mood that Mr. Obama on Tuesday hailed an initiative by his administration to cut the budgets of most major government agencies by 5 percent, at a time when conventional theory would call for more government spending to lift the economy.

Even the Federal Reserve is pulling in its horns. No one could expect it to cut interest rates further — they are at rock bottom. But spurred by inflation hawks in their midst, the Fed has gotten out of the business of buying Treasury securities and mortgage bonds, one of its main strategies over the last two years for pushing down long-term interest rates.

Over the last few weeks, the cautious optimism that the economy is on the mend has given way to more caution than optimism.

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