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Talk of Additional Stimulus Package to Aid U.S. Economy Recovery Boosts Markets

21 October 2008 - Features - Editor

U.S. stocks rallied on Monday morning as investors responded to signs that the credit market is improving. Remarks by Federal Reserve chief, Ben Bernanke, that Congress should look into passing an additional stimulus package to speed up recovery of the economy also served to lift the mood at U.S. stock exchanges. The early morning rally continued through the day with the Dow finishing at 9265 points, being 413 points, or 4.7 percent higher. Although encouraged by this result, the ongoing volatility of the market has taught stock market players not to get too excited when the market rallies as it did on Monday.

While stopping short of an outright endorsement of a plan to inject tax dollars into the flailing economy, while speaking before the House budget Committee, Bernanke noted that the economy is likely to remain weak for several financial quarters with a risk of a “protracted slowdown”. He further noted that “consideration of a fiscal package by the Congress at this juncture seems appropriate.” Experts are of the opinion that these statements by Bernanke will add weight to the chances that Congress will pass a stimulus package of some sort, most likely following the November election and prior to January when the new Congress takes office.

Earlier in 2008, when it became apparent that consumer and business spending was slowing down drastically, Congress approved nearly $100 billion in payouts to tax filers in an effort to boost spending. Recently, both in Washington and on the presidential campaign trail, there has been increased discussion on improving unemployment benefits, increasing food stamps and a moratorium being placed on foreclosures, among other measures that may be put in place. A statement released by the office of House Speaker Nancy Pelosi welcomed the fact that, “Chairman Bernanke added his voice to the chorus of economists, experts and policymakers who insist that American needs a job-creating recovery package to get our economy back on track and to restore consumer and investor confidence.”

Certainly, the thousands of Americans who have lost their jobs, and even their homes, in the past months are looking to the U.S. authorities for some relief. Meanwhile Bernanke is skirting around the term “recession” when referring to the U.S. economy, preferring to call it a “serious slowdown”, stating that “recession” is a technical description and whether current economic conditions are “called a recession or not is of no consequence.” With every statement made by authorities being pounced on, picked apart and analyzed by a bevy of experts, some economists view Bernanke’s recent comments to be his most dire assessment yet of the U.S. economy.

While many aspects of government assistance still need to be ironed out and obstacles in these untested waters will have to be overcome, many agree that it is encouraging nonetheless that action is being taken and that concrete relief for the American taxpayer is in the spotlight. President George W. Bush has been quoted as saying that he believes that the American public’s attitudes are starting to change from “near panic, to being more relaxed”. Investors are no doubt keen to see how all of this will be reflected in the market in the coming days.

 


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