Barack Obama's rhetoric during the transition period since his election has made it clear that his new administration will take an active approach to address the many current economic issues.
We expect to see a broad economic stimulus package which will include tax cuts as well as measures for boosting infrastructure expenditure and increased subsidies for higher education. Many of these measures are aimed at seeking to avoid the spectre of rapidly rising unemployment, as they are targeted at creating new jobs. Nonetheless we expect to see unemployment rise over the next few months from its current level of 7.2 percent.
In addition there are likely to be further measures to follow the TARP, which injected capital into banks. It is apparent that more steps are needed, and the trade-off will be that the administration will expect greater willingness of those financial institutions to lend.
The mortgage rate has fallen in recent weeks, which will provide some support to the housing market. However, there is a significant overhang owing to the number of foreclosures on homes where there is negative equity. We expect further action to try and slow the rate of foreclosures as this has a particularly negative impact on house prices.
These measures taken together with those implemented already, will give the US economy the chance to stabilise over the next few quarters before resuming moderate economic growth next year.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Investment Asia. The author was not remunerated for this article.
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