A Forex View From Afar

Second Stimulus On Its Way

After the “free $600” stimulus and a bailout plan that was voted and still, we still find every day something new about it, as it looks like a third booster may be on its way.

In his testimony, before the House of Representatives Budget Committee, Mr. Bernanke said a third plan (or second stimulus) would be welcomed for the economy. This is quite a turn, since just a few months back, the Fed Chairman said it was to early to think of such a measure.

The big question is now, what should the markets focus upon? On the stimulus plan, which will ease some of the economic tensions, or on the fact that the stimulus would not have to come if the economy would start to perform better?

For the moment, the markets are buying the news and posting modest gains. The facts that scare the most is that a central bank is usually clear in its expectations, and since Mr. Bernanke described the outlook as “exceptionally uncertain”, things are not on the bright side. Furthermore, since the boost is expected to materialize in the following months, most likely after elections, it seems the Fed’s expectations are on the downside.

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