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How Does Economic Stimulus Raise Consumer Confidence?

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You’ve heard a lot about stimulus recently and a bit about consumer confidence. Let’s tie all the pieces together. 

Consumer confidence is a reading of how confident consumers feel about their ability to spend going forward. This has everything to do with their expectations of future income and employment, how much cash they have on hand, and what their short-term liabilities look like. 

Stimulus is money spent from various agencies in the federal government or cash injected into the financial markets by the Federal Reserve to keep interest rates low and money running through banks’ hands. 

Consumer confidence has taken a huge hit of late. The coronavirus pandemic has spelled lockdowns, layoffs and lost income for millions of people. Americans have minimal confidence in their ability to spend.

But the government has sent more than $1,000 per person directly to households. The Fed has pushed short-term interest rates to 0% and injected trillions of dollars of capital into all areas of the bond market, keeping borrowing rates low for companies and people. 

The purpose of this stimulus money is to rev up spending in the economy. If the effect is that businesses don't lay off as many people as previously anticipated, and Americans spend some of that money on shopping or goods, then the stimulus packages will be seen to have worked.

To see how to approach all this as a stock investor, watch the video above. 

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