Paulson: Turmoil to Persist But Economy Strong

Treasury Secretary Henry Paulson said on Friday that it will take time to work through the problems contributing to current financial market turmoil but expressed confidence U.S. growth will not be derailed.

Lefteris Pitarakis / AP

"I feel very confident that this economy is going to continue to grow," Paulson said in an interview with CNBC. "Inflation is contained and that is obviously the key to extending an economic expansion."

The U.S. Treasury secretary was spending a day in Chicago speaking to business people before heading for France and Britain to meet finance ministers there in Monday.

He drew a distinction between the current period of turmoil, which stems from problems in the U.S. subprime mortgage sector, and past ones like the Asian currency crises of the late 1990s when much of the global economy was in distress.

"A number of these periods of turbulence in the past were precipitated by problems in the real economy and that's the differentiating factor here," he said.

"The real economy is very healthy in this country, very strong outside of this country and with that as a backdrop it gives me great confidence we're going to be able to work our way through this.

"We have a diverse, healthy economy in the U.S. and markets ultimately follow what happens in the economy."

Paulson was speaking just days ahead of next Tuesday's meeting of the Federal Reserve's policy-setting Federal Open Market Committee, which is widely expected to lower rates.

He made no direct comment on what he expected the U.S. central bank to do but praised the Fed's actions in taking steps in recent weeks to inject funds into financial markets to ensure they had ample liquidity.

"When you look at liquidity, that's the responsibility of the Fed," Paulson said. "I have real confidence in what they're doing."

He added that he thought there has been "some modest improvement in a number of markets that are under stress," including the asset-backed commercial paper market, and said it will take time for risk to be reassessed and repriced before markets settle down.