As traders and investors digested the impact of the market's latest sell-off on both assets and investor psychology, Tuesday's jolt is likely to speed the passage of a U.S. fiscal stimulus package to boost the ailing U.S. economy, economists and analysts said Tuesday.

President Bush and U.S. Congressional leaders from both parties are expected to discuss this afternoon that fiscal plan, which should aide place $140-160 billion into the econmy, Bloomberg News reported Tuesday.

Fiscal stimulus: sooner the better

Independent currency trader Andrew Resnick, said if Tuesday's market jolt prompts President Bush and lawmakers to agree on a package of tax cuts/rebates and spending increases, then the market's latest gyrations "will turn out to be a blessing in disguise."

"One thing we have learned in modern markets is that broad-based fiscal stimulus does increase economic activity and economic growth. If the package is passed relatively quickly, within a month or two, the economy will begin to see those benefits in late Q2 and Q3 and the markets will sense that, and the markets should stabilize," Resnick said. "Also, there's the fact that the markets have pretty much factored-in a $150 billion stimulus package, so any pulling back now would not be viewed as constructive by the markets."

Resnick also said he supported the U.S. Federal Reserve's emergency monetary policy action to cut key interest rates Tuesday morning - - one where the Fed cut both the Fed Funds rate and the discount rate by 75 basis points. The Fed cut the Fed Funds rate to 3.50% and the discount rate to 4.00%.

"It was the right move," Resnick said. "There will always be critics that say 'The Fed is bailing out a bunch of bad mortgage lending decisions, but the problem is much broader now than bad mortgages. The Fed's decision has helped re-assure the markets that liquidity is present. It has helped stabilize the foreign exchange market. The dollar hasn't collapsed. These are not insignificant positives. The Fed's decision represented the right monetary policy decision." Resnick added that he is presently flat, or has no currency market positions.

In early Tuesday afternoon trading, the dollar was mixed against the world's other major currencies, up 0.74 yen to 106.74 yen, and down 1.5 cents to $1.9580 versus the British pound. The dollar also lost about 1.5 cents versus the euro to $1.4601.

Two-part fiscal stimulus?

With Fed's action reassuring the markets that policy makers remain aware of short-term concerns affecting the markets, traders' and analysts' attention turned to longer-term concerns, principally the size of the fiscal stimulus package.

Economist Steve Affinito told BloggingStocks Tuesday he was "glad to see that U.S. Secretary Henry Paulson said a stimulus package less than 1% of GDP would not be large enough."

"A one percent package would mean about $140 billion in fiscal stimulus, which would be helpful, if it's passed soon," Affinito said. "But I'd double it, basically. Congress is not likely to pass a package above $250 billion, but this is one case where we could push the limits."

Affinito favors a larger stimulus package because mortgage defaults, in his interpretation, will continue to act as a contractionary force through 2009 on the already slow-growth U.S. economy. Negative growth conditions in housing, combined with sluggish consumer spending, and the warrant cautious stance by investors, "will undoubtedly serve to limit commercial activity in the quarters ahead," he said. Hence, the U.S economy may need an infusion of $150 billion now, then another $150 billion within six or nine months, just to keep growing at a mild rate, Affinito said.

Affinito said a +$200 billion fiscal stimulus package does carry the risk of increasing inflation, but the counter risk -- and in his interpretation, the more serious economic risk -- remains economic contraction.

"We have falling houses prices, falling stock prices, and some falling bond prices. That's a lot of value being taken out of the economy," Affinito said. "On balance, those present a far more serious concern for the economy than a spending-induced inflation risk, so the focus has to be on stimulating the economy."