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Monetary and fiscal policies to the rescue?

Business Times - 29 Jan 2008


Monetary and fiscal policies to the rescue?

Observers worry that the policies' potential effects could plant the seeds of stagflation

By LEON HADAR
WASHINGTON CORRESPONDENT

FACED with a clear and present danger that the crisis in the sub-prime mortgage sector and the ensuing turmoil in the financial markets could transform the downturn spiral in the US economy into a long and painful recession, officials and lawmakers in Washington decided last week on strong doses of monetary and fiscal medicine.

Many economists remain doubtful that the monetary step - an emergency rate cut of three-quarters of a percentage point by the Federal Reserve (the largest in a quarter century, that was announced last Tuesday) - combined with the US$150 billion package of fiscal stimulus agreed by Congress are going to avert a recession, especially since it would take several months before these two moves could affect the economy.

Moreover, many observers are worried that some …