President Obama delivers the State of the Union address to a joint session of the US Congress, Wednesday Jan 27, 2010

President Obama in his first State of the Union address to the US Congress on Wednesday night, focused on jobs and reducing the national deficit, dedicating almost two-thirds of his speech to economic issues, at a time of political ferment in Washington DC, a week following the dramatic loss of the late Edward Kennedy's Senate seat in Massachusetts. Earlier on Wednesday, on the eve of a US Senate vote on Ben Bernanke's nomination for a second term as Federal Reserve chairman, the central bank’s rate setting committee kept short-term interest rates near zero and provided a more optimistic assessment on the economy, than it had in December.

In his speech, Obama offered a list of specific steps aimed at improving the fiscal outlook  -- tax credits to create jobs, $30 billion in loans for small businesses, breaks on college education debt, and extending bonus depreciation, which allows companies to recover the costs of capital expenditures at an accelerated pace, amounting to what is estimated to be a 10 per cent corporate tax reduction over the next two years. He said some of his proposals would quickly bring relief to families who continue to suffer the effects of recession. The President also said the US should have a target to double exports in five years and advocated the passing of pending free trade agreements currently before Congress. 

The President also proposed a three-year freeze on discretionary spending and promised to let Bush era tax cuts for wealthy Americans expire. And he said he will issue an executive order creating a deficit commission to confront the long-term fiscal challenge from Medicare and Social Security.

On health-care reform, the signature domestic issue of his first year, he pleaded for a new sense of bipartisan cooperation "as temperatures cool" to save legislation that stalled earlier this month.

President Obama accepted blame for its slow movement, saying that it is a "complex issue, and the longer it was debated, the more sceptical people became. I take my share of the blame for not explaining it more clearly to the American people."

But while acknowledging a failed process that has "left most Americans wondering what's in it for them," Obama did not outline how the Congress should move on the process but told both sides in the chamber that they were not elected to spend their time just thinking  about their next election.

"By the time I'm finished speaking tonight, more Americans will have lost their health insurance. Millions will lose it this year," he said."Our deficit will grow. Premiums will go up. Co-pays will go up. Patients will be denied the care they need. Small-business owners will continue to drop coverage altogether. I will not walk away from these Americans. And neither should the people in this chamber."

The President warned lawmakers, that "we face more than a deficit of dollars right now. We face a deficit of trust." He said the public's anger was rooted in "deep and corrosive doubts about how Washington works," and he called for less partisanship and more action to "give people the government they deserve."

He slammed the thousands of lobbyists whom he accuses of trying to sabotage his healthcare reforms and financial regulation, demanding that they be forced to publicly disclose all contacts with the White House and Congress,

In a dramatic moment, with six black robed justices of the Supreme Court seated directly in front of him, Obama said: "With all due deference to separation of powers, last week the Supreme Court reversed a century of law that, I believe, will open the floodgates for special interests, including foreign corporations, to spend without limit in our elections."

As Democrats applauded, cameras showed the justices sitting expressionless except for Bush appointee Samuel Alito, who voted with the majority in the 5-4 decision that overturned a 1907 law that banned corporations from directly funding elections.

"Not true, not true,"Alito appeared to say, as he shook his head and furrowed his brow.

"I don't think American elections should be bankrolled by America's most powerful interests or, worse, by foreign entities,"Obama continued. "They should be decided by the American people. And I urge Democrats and Republicans to pass a bill that helps correct some of these problems."

CNN transcript and video excerpts

Federal Reserve

After the meeting of its FOMC rate setting committee on Wednesday, the Fed's statement began:: "Information received since the Federal Open Market Committee met in December suggests that economic activity has continued to strengthen and that the deterioration in the labor market is abating."

The FOMC voted 9-1 to keep its interest-rate target unchanged at near zero and maintain its language that economic conditions “are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” The wording has remained in the FOMC’s post-meeting statement since last March.

The dissenter, Kansas City Fed President Thomas Hoenig, “believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted,” the statement said.

The statement noted that Business spending on equipment and software appears to be picking up, but investment in structures is still contracting and employers remain reluctant to add to payrolls. Firms have brought inventory stocks into better alignment with sales.

US economists are forecasting much stronger growth in the fourth quarter, more than double the 2.2% annual rate of expansion in the third quarter.

Reacting to the FOMC decision, with Ken Heebner, CGM Realty; Robert Doll, BlackRock; Ken Volpert, Vanguard Funds; Bill Gross, PIMCO; and CNBC's Steve Liesman: