Set for reveal in a nationally televised speech at 7 p.m. ET on Thursday, the plan is reportedly a $300 billion package that will include $120 billion to maintain the current payroll tax reduction and $50 billion to further extend unemployment benefits. It will also provide funds for infrastructure projects and aid to local and state governments, according to multiple media reports.
Ian Shepherdson, chief U.S. economist at High Frequency Economics, doesn't see a big benefit to the economy from the extension of the payroll tax reduction as this "just keeps people in the same position they are in today."
He is more keen on plans to broaden the reduction to include employer contributions too, saying this at least is new and would represent stimulus of about $100 billion. Other elements -- the infrastructure spending etc. -- could translate to another $100 billion, which would be around 1.3% of GDP, not quite enough in Shepherdson's view."A net stimulus of 1% of GDP next year would be welcome, but it would not be enough to fully insulate the U.S. from major bank failures in Europe; we think 3% of GDP would be required for that," he says. "We hope, therefore, that Europe's banks will be propped up by whatever means for as long as possible, so as to give the U.S. the best chance to develop a degree of domestic momentum." As for where stocks go from here, Sam Stovall, chief investment strategist at Standard & Poor's, weighed in after Wednesday's rise, saying he believes near-term risks are still elevated and advises investors take a "cautious stance," even though S&P's year-end target for the S&P 500 of 1400 implies a gain of nearly 17% from current levels. "Investors are trying to decide whether they should surrender to attractive valuations and buy into a market that may be propelled by the President's jobs speech and the prospect of additional quantitative easing, or, if by doing so, they would only be responding to a siren call as the U.S. ultimately heads into recession on the heels of a renewed price decline," he writes.
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