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Will Congress Jolt the Economy?


Both parties may need to make concessions lest they be seen as the party that abandoned the American economy in its time of need.

The market continues to search for a reason to be positive, as disappointing earnings reports from Intel (INTC), Citigroup (C), and this morning's results from Merrill Lynch (MER) have done little to engender much support's for Hoofy's cause.

It appears Boom Boom has come around to the fact that consumer spending is slowing at every level, and the market now expects the Fed to cut interest rates by 50, and possibly 75 basis points next week. This morning, however, Bernanke will be dancing around the subject of a proposed fiscal stimulus package in front of the House Budget Committee.

Of the Fed Chairman's views on the subject, Senator Chuck Schumer (D-N.Y.) said "[Bernanke] said that while he wasn't going to endorse a specific plan, if an economic stimulus package was properly designed and enacted so that it enters the economy quickly, it could have a very positive effect on the economy."

While Democrats and Republicans both agree a package is needed, they differ as to what provisions should be included in what some say could be a $100 billion proposal. Democrats are championing rebates for middle-class taxpayers, expanded unemployment benefits, heating assistance for low-income people and accelerated spending on public works.

Republicans, on the other hand, are looking for tax breaks for businesses to encourage capital spending and new hiring, in addition to making President Bush's tax cuts permanent.

Many analysts expect tax rebates to be a key negotiating point, as some influential Democrats have said they will not agree to a plan that makes the rebates permanent. In return, Democrats may have to ratchet back some of their plans to raise taxes to help pay for the stimulus.

Further complicating the subject is that the weakening economy now competes with the Iraq war and national security as the most salient issue for voters in the upcoming election. With mounting pressure from a wide range of constituents, both parties may be forced to make concessions lest they be seen as the party that abandoned the American economy in its time of need.

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