Markets Fear a Congressional Turkey

NEW YORK -- U.S. financial markets would count their blessings if Congress adjourns this Thanksgiving week, as planned, without causing further disruptions.

The stock and bond markets are jittery as officials in Washington raise the possibility of using fiscal policy to stimulate the economy.

Economists said a Republican proposal unveiled Friday to reduce capital gains and other taxes is highly unlikely to be considered before Congress adjourns. But markets may worry that such plans will resurface when Congress returns in January.

A Persistent Cloud

"This cloud of [talk about] fiscal stimulus that is weighing on the market will continue to be there," said Ray Stone, partner at Stone and McCarthy Research Associates Inc.

One concern about such measures, economists said, is that they could punch an even bigger hole in the already gaping U.S. budget deficit. Increased financing pressure on the Treasury could also eventually drive up borrowing costs and pull the economy back into the doldrums.

Meanwhile, information due out this week is expected to reinforce the notion that the recovery is still sputtering.

Car sales data for mid-November were expected by economists to show sales at an annual rate of 6 million units, the threshold of what is considered unacceptably weak.

Bonds Shake

But here, too, markets worry about Washington interference. Rumors in financial markets last week that the administration was considering tax breaks for Americans buying cars sent shivers through bonds.

"The best advice that I have seen for Washington is that they should be doing nothing," said David Resler, chief economist at Nomura Securities International. Any act that effectively subsidizes car sales may encourage price increases, he said.

Many economists also expect the Conference Board's consumer confidence survey for November, due to be released today, to show that consumers are still worried about job prospects.

Despite worries about the economy, stocks have reacted badly to plans by Washington to spur growth.

Impact of Tax-Cut Talk

Administration and congressional officials shelved talk about capping credit card interest rates, for example, after a 120.31-point drop in the Dow Jones industrial average Nov. 15. Markets feared such a move would undermine already shaky bank earnings and reduce their willingness to extend credit.

When the Dow Jones index closed Friday at 2,903, down 30 points, the selling was attributed in part to the new GOP proposal to cut capital gains taxes.

Analysts said the best thing for markets would be for Congress to go home.

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