Newspaper article The Christian Science Monitor

What the GOP Gains Mean for Economy and Business

Newspaper article The Christian Science Monitor

What the GOP Gains Mean for Economy and Business

Article excerpt

THE political tremor across the country may make only subtle changes in the United States economy.

At least that's the early opinion of economic analysts.

The Republican gains, however, may give a boost to the US dollar as well as the stock and bond markets. "The foreign-exchange and domestic markets tend to like and trust Republicans more when it comes to policy stewardship," says Bob Brusca, chief economist at Nikko Securities Company, International, Ltd.

In fact, the Republican triumphs gave US stocks an immediate boost in Europe. This positive sentiment carried through to the US bond market, where long-term interest rates fell.

The timing of the drop was beneficial to the US Treasury, which was selling 10-year bonds. "This is the best news the Treasury has received in a long time," says Brian Fabbri, an economist with Paribas Capital Markets.

The political shift may also mean less business regulation, as control of key congressional committees shifts to Republicans. "That's a tax cut in a sense," says Paul Kasriel, an economist with the Northern Trust Company in Chicago, who notes that government regulations add to companies' costs of doing business.

Although some Republicans would like to see a large middle-class tax cut, economist Sandy Batten of Citibank doubts that Congress will enact such a change. "The financial markets would not be thrilled with such a cut," he says, because of the implications for the federal budget deficit.

Instead, Mr. Batten is hopeful that Congress will concentrate on some "A to Z" spending cuts. Such cuts, he believes, would help the economy by giving investors more confidence.

Other economists also do not expect that Republicans will work toward a national tax cut right away. Instead, says Mr. Fabbri, "We are more likely to see local tax cuts than national ones."

This may be particularly true in New York, where Republican gubernatorial challenger George Pataki unseated Democratic Gov. Mario Cuomo. In his campaign, Mr. Pataki often pointed approvingly to tax cuts made by New Jersey Gov. Christine Todd Whitman.

"New Jersey is a powerful example for a lot of states," Fabbri says.

The political changes are not likely to have any immediate effect on the US economy, which continues to skip ahead. …

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