this easing of policy will not be immediate: there is a broad view that there is a 6 to 9 month lag operating in the US between monetary easing and the subsequent impacts on the real economy. This cut has now been followed by a further half point reduction on October 3rd, taking rates to 2.5 percent, their lowest for almost 40 years. Moreover, the consensus appears to be that further cuts will be seen this year, possibly taking rates down to 2 percent.”The Fiscal policy was also eased significantly in the immediate aftermath of the attacks. Business Week reported that “ The US Congress rapidly approved a $20 billion announcement by the President, and then promised a further $20 billion for the restoration work. In addition, the Administration announced another set of support measures with a $15 billion rescue package for airlines, including $5 billion in direct grants to cover immediate losses, and $10 billion in loan guarantees. These latter guarantees necessarily imply a potentially huge contingent liability and not without their critics. Additional spending on defense expenditure is suggested to be of the order of $18 billion this year, and a massive $60 billion next year.” Business Week continues to write that “ Altogether, this represents a very major fiscal stimulus, primarily resulting from the decision to effect a military response and the recovery/restoration work, together with the perceived desirability of immediate action in support of some specific sectors. It does equally provide a major economic stimulus at a time of very fragile confidence and the threat of a significant slowdown in activity.” The key issue determinant in the US is likely to be the short and medium trend in business and, particularly, consumer confidence, and it will take time before this can be assessed properly. ...
