U.S. Treasury Secretary Timothy Geithner said on Monday the financial system was beginning to thaw but any renewed pick-up in the economy would likely be slower than usual.
The United States is experiencing its worst recession in more than a half century, one driven in part by a ravaging banking crisis that brought corporate and consumer lending to a near standstill.
Geithner said the unprecedented government emergency measures, totaling in the trillions of dollars, have since made some headway in bringing down key borrowing costs. Yet he conceded that, given the shock to the system, the healing process would take time.
"Recovery will be slower than we would normally see," Geithner said at an event sponsored by Time Warner. "This is still going to be an exceptionally challenging time for business and consumers."
He added that unemployment, which rose to a 26-year high of 9.4 percent in May, will likely continue rising even as economic growth resumes.
Asked about his recent trip to Asia, Geithner said the Chinese government, the biggest foreign holders of U.S. government bonds, clearly understood the need for Treasury borrowing to rise to grapple with the crisis.
"The lesson of financial crises is that you have to be forceful early," Geithner said.
On the issue of healthcare, Geithner expressed confidence that President Barack Obama's reform plan would get passed this year, adding that the administration would make sure that plan did not compound a record budget deficit.
Geithner denied that his plan for getting so-called "toxic assets," essentially bad loans, off banks' books, was being abandoned. Instead, he reiterated that a renewed ability by financial institutions to raise private capital might reduce the need for the program.
The Treasury Secretary, who published an opinion piece in the Washington Post on Monday making the case for tighter financial regulation, again voiced his desire for better rules to contain finance.
"The only path to a more stable system will be more capital in the system and greater constraints," said Geithner. "We can do that without depriving the economy of innovation."
Geithner said that, while the recession is causing significant personal pain for many families and individuals, the move toward a more frugal mentality was, on the whole, a positive thing.
"That's a healthy process for the economy," he said.
