On March 18, the US Federal Reserve (Fed) slashed key interest rates by three-quarters of a point, wrapping up its most aggressive two months of rate cuts in a quarter of a century. In response, the US Consumer Confidence Index plunged to 64.5 in March from a revised 76.4 in February – a five-year low – as tight credit markets; rising prices; and worsening job prospects deepened concern over economic recession.
The US Consumer Confidence Index has been weakening since last July; and is being closely watched as lower consumer confidence tends to result in lower consumer spending. This, in turn, drags the economy down.
Economist Bernard Baumohl, executive director of The Economic Outlook Group in Princeton Junction, NJ, said consumer pessimism "reflects great anxiety that households carry because there are just so many uncertainties that everyone faces."
Baumohl believes the economy fell into recession in the current quarter and that growth probably will not resume until the second half of the year, after government stimulus programs have had a chance to function. These will include measures by the Fed to boost credit markets and the Bush administration's plan to distribute tax rebates, starting this summer, in a bid to encourage consumer spending.
The US economy has obviously been on the downside. As David Jones, a chief economist, was cited as saying: "we are on the brink of the largest financial meltdown this country has ever seen." The Fed says it is ready to supply all the emergency credit banks need to help the super economy out of trouble. Despite this, the weak confidence from consumers not only depressed share prices on Wall Street; but also mirrored a fact that the dim situation could not be reversed as quickly as expected.
After all, as a bellwether to the global economy, the U.S. will play a trend-setting role in global economic structure: its recession could be the turning point of an global economic decline. One vivid statement says it all: "if the US sneezes, the whole world will catch the flu."
Admittedly, economic globalization is a double-edged sword, which comes with the risk of injuring one and injuring all. In particular, because the international financial market is a coordinated system, the fluctuations in the US market will send a huge wave throughout the global financial market.
It is also anticipated that economic shocks sweeping the globe suggest the emergence of a new economic era in which emerging economies, such as China and India, will spearhead the world economy. Be that as it may, what currently faces emerging economies is how to stand up to the global-sized crisis and minimize the side effects brought about by the plummeting economy.
China, for instance, will primarily take concrete measures to curb its inflation, which hit a nearly 12-year high; and a CPI soaring to 8.7 percent in February. Premier Wen Jiabao, on various occasions, cited taming inflation as his top priority this year, and set the benchmark for the 2008 CPI at 4.8 percent. Analysts have observed that China's economy can still maintain steady growth as long as the country can transform its mode of economic growth to be geared for growth in quality; and the economic structure is improved, increasing self-sufficiency while decreasing its reliance on the international market.
By People's Daily Online
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