Congress should lift the shaky economy onto solid ground later this year and may prompt a pause in the Federal Reserve's interest-rate cuts, analysts said Tuesday. Two measures included in the plan are set to take effect this year and will put more spending money into taxpayers' wallets, potentially bolstering consumer spending. It is very important and will have a bigger impact than a lot of people had been anticipating. And income tax rates will be reduced starting July 1. No one can predict how much of the added money will be spent rather than used to pay off credit cards or save for a rainy day.
Consumer debt is at a record level and continues to mount.
But even a small spending increase can go a long way to stimulating the economy, since consumer spending accounts for two-thirds of U.S. economic activity. International Strategy and Investment Group, a New York group, estimated the tax-cut package will add 1.6 percent, on an annual basis, to U.S. economic growth in the third quarter and another 0.8 percent in the fourth quarter. That would be significant, considering the U.S. economy grew at a mere 1.3-percent annual rate in the first three months of 2001. But some analysts said the Fed may decide to watch how the tax cut affects the economy before cutting interest rates further. It has cut rates five times this year, by a half-percentage point each time.