One debate that will go on this week centers on the Fed. One question traders are asking, “Is the Fed out of bullets?” All signs point out that the government’s stimulus plans as well as the Fed’s activity have done nothing to stimulate the economy. The housing market is bad despite mortgage rates below 5%. Unemployment is high and expected to rise. Money has been made available to banks, but individuals and businesses have not been able to get credit.
Politics have played a major role in the downturn in the economy in my opinion. Instead of shoring up the economy and employment, the administration chose to fight for healthcare and financial reform. U.S. citizens are now worried that a tax hike is coming to pay for this legislation. Uncertainty over the healthcare plan is making it difficult for businesses to know their costs. This uncertainty is most likely preventing companies from hiring. At this time Congress is trying to decide whether to extend Bush’s tax cuts. A failure to do so will amount to a tax hike.
The November elections are also a concern for investors. Most seem to be taking a wait and see attitude because of the uncertainty over which party will gain control of the House and Senate.