With Europe tilting toward recession and the U.S. recovery slogging along, both Federal Reserve chairman Ben S. Bernanke and President Obama stepped up their efforts to bolster the economy.
The Fed sought to buy time by pledging to keep interest rates low even longer and Obama, geared up for an election year, began a push to bring manufacturing jobs back to the U.S.
Stock markets reacted favorably, particularly to the prospect of continued low interest rates and signals that Bernanke would do what he had to do to support the recovery, but both initiatives point to lingering troubles in the current economy.
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After a key meeting Wednesday on monetary policy, the Fed said unemployment would decline only gradually over the coming quarters and that it would keep its benchmark interest rate “exceptionally low…at least through late 2014.” That pushes the central bank’s timeline for the next interest rate hike back more than a year.
Investors pushed the S&P Retail Index up 0.4 percent, or 2.32 points, to 555.85, as the Dow Jones Industrial Average rose 0.7 percent, or 83.10 points, to 12,758.85. Both indexes are near the highs hit last summer just before Washington’s highly politicized debt ceiling show-off hit markets hard and resulted in a credit downgrade of the U.S. just as the euro crisis worsened.
Given the election in November, there seems little hope that this year will be any less contentious politically.
Obama, sounding the populist themes he will take on the campaign trail, outlined a plan to boost American manufacturing jobs during his State of the Union address Tuesday night.
“We have a huge opportunity at this moment to bring manufacturing back,” Obama said. “But we have to seize it. Tonight, my message to business leaders is simple: Ask yourselves what you can do to bring jobs back to your country and your country will do everything we can to help you succeed.”
White House officials on Wednesday released details of the President’s “Blueprint for an America Built to Last,” which contains six tax proposals that “support manufacturing, discourage outsourcing and encourage insourcing,” and will be included in the President’s budget proposal to Congress next month.
The current tax code allows companies that move production or services overseas to deduct their moving expenses, thereby reducing their taxes in the U.S. Obama wants to eliminate that deduction and instead give a 20 percent income tax credit for the expenses of companies moving operations back to the U.S.
Another proposal would give tax credits to companies moving to and investing in hard-hit communities. The credit would provide $2 billion a year in incentives for three years, the White House said. The tax package would also reauthorize 100 percent expensing of investment in plants and equipment.
On the trade front, Obama said he will create a Trade Enforcement Unit that will be charged with investigating unfair trade practices and presumably supplement enforcement and investigations already conducted by the Commerce Department and U.S. Trade Representative’s Office.
“I will go anywhere in the world to open new markets for American products,” Obama said. “And I will not stand by when our competitors don’t play by the rules.”