President Bush led his party to a stunning midterm election victory despite a series of daunting economic problems that might have been expected to produce the opposite result.
The stock market fell more after his inauguration than during any similar period since the Hoover administration. The economy lost more than 2 million private sector jobs, and investor confidence plunged amid corporate scandals that reminded some of the 1930s.
Even as the president was celebrating the election results Tuesday night, his choice as chairman of the Securities and Exchange Commission was resigning and the Federal Reserve was preparing to cut interest rates to the lowest levels since 1961. Both moves reflected worries that the situation was significantly worse than it appeared only a few months ago.
Now a victorious president confronts a question most commonly asked by presidents who have suffered severe midterm election rebuffs: What will it take to get things back on track before he seeks re-election in two years?
In the economy, it is clear that the Federal Reserve's contributions to stimulus are coming to an end. After cutting the key interest rate it administers to 1.25 percent, the lowest since John F. Kennedy was in the White House, it indicated it did not expect to cut rates again soon. In any case, it cannot cut rates much farther.
"It makes sense for the Fed to act very aggressively when it doesn't have much ammunition left," said Bill Dudley, the chief US economist at Goldman Sachs. "But we shouldn't kid ourselves that this makes everything all right."
If further stimulus is needed for the economy, the Fed's situation makes it all the more likely that the burden will rest on fiscal policy. There is a widespread expectation that Bush will look for more tax cuts, while concentrating spending increases on defense and fighting terrorism. With Republicans controlling both houses of Congress, there is every reason to think he will get much of what he wants.
But his first challenge will be naming a new SEC chairman to replace Harvey L. Pitt, who resigned Tuesday night. Pitt is widely viewed as having botched the appointment of the Public Company Accounting Oversight Board, whose chairman, William L. Webster, is facing an investigation of his role as chairman of the audit committee of US Technologies and is involved in a ``who said what'' dispute with the company's former auditor -- a firm that the new board will regulate.
Names of potential SEC chairmen circulated widely on Wednesday, but there was no indication that any of them met with the approval of Bush, who must decide which constituency to appease in making an appointment that will be scrutinized.
Blockages
When Pitt was chosen, it was reported that other candidates had been blocked because they were viewed as too eager to impose new regulations. That, of course, was before scandals at Enron and WorldCom led to passage of the Sarbanes-Oxley law, which established the new accounting regulator and called for a series of new regulations.
A new chairman, if chosen quickly, will have to decide what to do about the accounting oversight board. That will involve choosing a new chairman if Webster steps down, as many expect he will do, or it will involve deciding whether to ask Webster to do so. To lure a new, high-quality chairman, it might be necessary to offer that person some choice in whether other board members should also leave.
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