Articles from 01/20/08 to 01/26/08

A day after Congressional leaders and the White House shook hands over a draft of the economic stimulus plan, we’re getting more reaction from lawmakers and other interested parties. While the proposal seems to enjoy broad political support, there is some doubt it will really help the U.S. economy. As I reported yesterday, the centerpiece of the package is tax rebate checks that consumers will be able to spend. Estimates are that some portion of the $100 billion rebates will be spent. But mortgage consultant Howard Glaser points out the rebate total makes up just a fraction of the $600 billion took out of home equity and spent on consumer goods in 2006.

I am starting to think I am becoming Republican because it seems like I have been paying more attention to that political party this election…not by choice, but chance. I was so busy over the MLK holiday weekend, I completely spaced on the last Democratic debate that aired this past Monday. Last night I attended the Republican debate at Florida Atlantic University not because I am Republican or actually covering the event, but because I wanted to witness a part of history.

It was very interesting to watch the media hustle and bustle about… tangled cords, blinding lights in almost every direction, cameras, and the bountiful amount of reporters… absolutely a media frenzy. Although overwhelming, it reminded me why I picked this line of work. I felt like a paparazzi weaseling my way through the crowd to try and get up close and personal with the candidates. I snapped a few shots of Ron Paul and Mike Huckabee, but the other candidates were out of sight.

NBR viewers, we hear you! We miss the charts too and are working diligently to get them back on the air. So here's the short version of why Paul doesn't have any charts in his Stocks in the News segment... Literally thousands of symbols our computers use to track stocks were changed last weekend. Those changes have thrown our charting software for a loop. We are working with our database provider to fix the problem but it requires the recoding of thousands of symbols. We are not the only program impacted by the issue; Fox is also without charts. We hope to have the charts back on the program next week. Right now, it looks like the earliest fix will be Tuesday. That said, we appreciate your patience.

Now that I've told you what's going on with our charts, let me tell you about where we're headed with tonight's program...

With an agreement between Congressional leaders and the President, the real debate about economic stimulus has begun. Republican leader John Boehner called the bill a good compromise and a “big win for the American people.” But Senate Democrats are already intent on changing the plan. Senate Finance Committee Chairman Max Baucus says his committee will consider adding additional spending for unemployment insurance, food stamps, and infrastructure projects.

House Financial Services Committee Chairman Barney Frank worked in an increase for the conforming loan limits for Fannie Mae and Freddie Mac (from $417,000 up to 729,500). Treasury Secretary Paulson said that was over his objection, and the regulator for Fannie and Freddie, James Lockhart, issued a statement that he was “very disappointed” by the increase in the limit without also adding a tougher regulator for the firms.

We have been talking a lot lately on our program about recession. What are the chances of one this year? What will it look and feel like if it comes? The definition of recession is two quarters of negative growth. Third quarter 2007 GDP, which is the last reported measure of U.S. economic growth, came in at a robust 3.9 percent. To be sure, most economists believe growth in the fourth quarter of 2007, which will be reported next Wednesday…on the same day as the Fed meeting, fell sharply from Q3 levels. But, most are still forecasting slim growth in that October through December period.

Clearly today’s 75-basis point rate reduction was a shocker. It’s rare for the Federal Reserve to adjust interest rates between meetings. And it’s even rarer for the Central Bank to move in ¾ point increments.

But equally as surprising to me is the fact that the experts see more rate cuts next week.

Respected brokerage firms Goldman Sachs and Morgan Stanley expect the Fed to slash the Federal Funds rate another half of a percentage point -- to 3.75% -- when the regularly scheduled policy meeting concludes January 30th.

Other economists are less committal. They say the magnitude of a cut next week -- if it comes at all -- will depend on whether the markets show signs of calming down.

What's next? That's the question most everyone is asking as this Tuesday unfolds. Overseas markets plunged for a second straight day and the Dow and S&P 500 futures were trading sharply lower this morning, when the Federal Reserve stepped in around 8:20 am and slashed short term interest rates by 75 basis points. In a statement the Fed said it took the action in view of a weakening of the economic outlook and increasing downside risks to growth. U.S. stocks still plunged at the open of trading with the Dow falling as much as 464 points.

Tonight Susie Gharib will talk about the Fed's rate cut with Robert McTeer, the former President of the Federal Reserve Bank of Dallas. Erika Miller is following the mood on Wall Street, talking with some longtime market strategists about their view of those downside risks to growth. The selling on overseas markets was linked to worries about the U.S. economy after President Bush on Friday outlined his economic stimulus package. The President is meeting with House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid today to talk further about the stimulus plan. As Stephanie Dhue reports, Reid wants Congress to get a stimulus package to the President's desk within three weeks.

Now that the Fed has cut 75 basis points, the pressure is increasingly on lawmakers to pass a fiscal stimulus plan. But while it may seem an easy call that Washington will help, history shows that Washington isn’t very good at doing that. At a Senate Finance Committee hearing this morning Congressional Budget Office Director Peter Orszag cautioned lawmakers against focusing too much on short term market moves, but instead on the “real” economy. On its first day back from the winter recess, the Senate is now looking at how to craft a stimulus plan.

Even if lawmakers work at record speed and agree to a stimulus package that includes tax rebates, it will be June/July before consumers have money in their pockets to spend. Past experience suggests that money won’t be pumped into the economy right away, but rather that it would influence spending for Christmas 2008.