Summers says U.S. stimulus working, deficit can wait

By Emily Kaiser

WASHINGTON (Reuters) - The Obama administration's $787 billion (£482 billion) stimulus package is working despite rising U.S. unemployment and stabilizing the economy must take precedence over tackling the bloated deficit, a top White House economic adviser said on Friday.

Lawrence Summers, head of the National Economic Council, also defended President Barack Obama's "ambitious" policy agenda, saying addressing big issues such as health care and energy reform would lay the foundation for future prosperity.

Obama made creating or saving jobs the measure of success for the stimulus package he signed into law in February, so the White House has taken considerable heat as the U.S. unemployment rate hit a 26-year high of 9.5 percent in June.

Some critics have argued that rising joblessness shows the stimulus package is not working, while others contend the spending plan was too small to begin with and a second dose was needed.

"Given lags in spending and hiring, the peak impact of the stimulus on jobs was expected not to be achieved until the end of 2010," Summers said in a speech at the Peterson Institute for International Economics in Washington.

Summers fielded a number of questions about the rising U.S. deficit, which in June passed the $1 trillion mark for the first nine months of the fiscal year, and the risk that the current financial rescue policies would spawn high inflation.

He dismissed concerns about price pressures, arguing that there was scant risk of the economy overheating when there was so much slack in the labour market and manufacturing industry.

"The greatest risk to future U.S. deficits would be uncontrolled economic contraction in the United States," he said.