WASHINGTON - After his worst political setback since he took office a year ago, President Barack Obama will vow to revive job growth and tame skyrocketing budget deficits in a crucial State of the Union speech on Wednesday.

Obama's annual address to Congress at 9 p.m. on Wednesday comes just over a week after his Democratic Party suffered the loss of a pivotal Senate seat in Massachusetts.

His feistier side is likely to be on display as he emphasizes populist themes like slapping new curbs on Wall Street and offering tax credits to struggling middle-class families.

There will also be signs of a recalibration by Obama, who promised to bring wholesale change to Washington but now faces a starkly different political reality. That has imperiled his legislative agenda of overhauling the healthcare system and fighting climate change.

Obama will need to chart a way forward on those efforts, which have been left in tatters now that Democrats no longer hold a supermajority of 60 votes in the Senate that would avoid Republican procedural hurdles.

The big mystery to me is, what on earth does he say about healthcare? said Charles Franklin, a political scientist at the University of Wisconsin, Madison.

Franklin said Obama sent mixed signals about whether he wanted to try to salvage the sweeping healthcare legislation, which has run into major trouble in the Congress, or seek a scaled-back bill.

The healthcare legislation dominated Obama's domestic agenda for much of last year.

This year, Obama will signal an emphasis on job creation, fiscal restraint and tighter financial regulations. He wants to dispel the idea that the healthcare push and other initiatives have distracted him from efforts to fix the economy.

He will likely devote time in the speech to emphasizing the improvement in the economy, which was in freefall when he took office but has begun to recover, though unemployment remains stubbornly high at 10 percent.


Seeking to cast off Republican efforts to paint him as a big spender, Obama is expected to propose a three-year freeze on many domestic spending programs and outline other measures to rein in the U.S. budget deficit.

The deficit soared to $1.4 trillion in the 2009 fiscal year and is expected to come in at $1.35 trillion in 2010, remaining near its highest levels as a percentage of gross domestic product since World War Two, according to the Congressional Budget Office.

In a symbolic gesture, Obama will also call for freezing the salaries of senior White House officials and other political appointees for a savings of $4 million in fiscal 2011, according to a senior administration official.

White House aides have played down the idea of rebooting the Obama presidency, but experts said a course correction is imperative if the president intends to help his party avoid crushing losses in November's congressional elections.

It would be political malpractice not to adjust to changing circumstances, said William Galston, a scholar at the Brookings Institution and a former policy adviser to President Bill Clinton.

I would expect the president to reboot, not by announcing a lot of new initiatives, but by focusing his agenda more sharply (on the economy).

Democrats are taking seriously the victory of Massachusetts Republican Scott Brown, who won the U.S. Senate seat long held by the late Edward Kennedy, particularly since it followed Democratic losses in governors races in New Jersey and Virginia late last year.

It's obvious that he needs some mid-course corrections and that he recognizes he needs that, said Larry Sabato, a political science professor at the University of Virginia.

The foreign policy portion of Obama's speech is not expected to be lengthy and will probably focus on U.S. involvement in the wars in Afghanistan and Iraq.

He is not going to use this occasion to launch any new foreign policy initiatives, Galston said. There are already so many out there in various stages of progress or nonprogress.

(Additional reporting by Steve Holland; editing by Chris Wilson)