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The Week Ahead: Fed, Congress poised to act on economy — or not

By Tom Hudson, McClatchy Newspapers

Which will act first this week: the Federal Reserve or Congress? Lawmakers must do something by Friday to avert a government shutdown. The Federal Reserve may feel compelled to do something at its regularly scheduled interest rate meeting Wednesday. The stakes are big, but the central bank has time and the economic trend on its side.

While far from fixed, the labor market has been showing very early signs of turning around. Fewer than 400,000 people filed for first time unemployment benefits in the first week of December. It was the smallest number of newly out-of-work Americans to request unemployment checks since the spring.

We’ve also seen companies boost inventories for the holidays. And for good reason — so far holiday sales have been brisk.
But these nascent signs of a faster-growing U.S. economy may not be the only criteria the Federal Reserve uses to decide if it should goose growth more. Europe remains an economic existential threat to global finance, and America’s central bank will do what it can to insulate early signs of accelerating growth here.

Congress, though, has neither the luxury of time nor of trend. Lawmakers must come up with a funding plan for the federal government by Dec. 17 or risk a partial shutdown. We have been to the budgetary edge so often recently that it barely registers. Extending the payroll tax cut, stretching unemployment benefits and trying to pay for them have tied up legislators as the calendar marches forward.

This week highlights the division of economic actors. While the Federal Reserve has been very active, Congress has been inert.

©2011 The Miami Herald

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