Word: feds
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...single trading day, Jan. 21, Hong Kong's Hang Seng index plunged 8.6%, Tokyo's Nikkei 5.7% and Mumbai's Sensex 12.9%. It was a worldwide mini-meltdown, and the Federal Reserve Board wasn't about to let that go unanswered. Before the U.S. markets had even opened, Fed Chairman Ben Bernanke - not a man known for dramatic gestures - slashed a key interest rate three-quarters of a percentage point. The surprise move arrested the rout, and the markets have since rallied, but investors are left to absorb an unavoidable truth: the U.S., still the world's biggest market...
...Whatever kind of correction the U.S. is headed for, policymakers don't want it to happen all at once. The Fed's rate cuts and the roughly $145 billion stimulus plan currently being mooted by the White House and Congress are all about pumping enough demand into the economy to make the journey downhill smooth and gradual. Consumer spending used to make up about 67% of all the economic activity in the U.S., but over the past few years, it's ratcheted up to around 72%. "If we take the 5 percentage points out this year, it will...
...Americans, a global slowdown, short of a recession, wouldn't be all bad news. Exporters would benefit, though they account for only 12% of the economy. A gradual global slowdown would also give the Fed far more room to maneuver without the threat of stoking inflation. But there are downsides too: the U.S. would see high energy prices as Asia's demand for oil kept soaring, a continued dollar slump as low interest rates made it less attractive to hold dollar-denominated securities, and the threat of rising inflation as a weak dollar made imports more expensive. And a global...
...crucial question is whether the country's policymakers - in particular the Federal Reserve - are capable of steering the economy between the twin risks of a painfully deep recession and yet another bout of unsustainable, debt-fueled consumer spending. There seems to be little controversy over whether the Fed should ease rates, but there's lots of controversy over when and how much. The Jan. 22 rate cut came as a shock, but it did seem to calm the markets, if not buoy them...
...effects of a broad global downturn. And so whatever happens in the markets this year, you probably will not feel as house-proud as you did two years ago. Someone you know will be looking for a new job. And gas won't be getting much cheaper. The Fed can't magically make all that go away. Neither can Congress or the White House. The best they can do is keep it from getting any worse than...