• Charles Heighton

Is the US any closer to a second stimulus bill?

By Charles Heighton – The London Financial Markets Editor and VP of Trading at King’s Global Markets

Market watchers and economists have been waiting months for the US Congress to agree to a second stimulus package. Despite several periods where a deal seemed likely, so far, no completed package has appeared.

Some movements were reported late this week as jobs data disappointed on Friday, sending a warning signal to politicians. Although Larry Kudlow — a Trump appointee — downplayed the jobs report, possibly indicating a less worried administration than the market would like. The rising case numbers in the US make the stimulus look even more needed. The deal currently being discussed comes in just below $1 trillion, but massive hurdles remain.

Progressive Democrats are pushing for another round of helicopter money to help the US citizens who are struggling the most, while Republicans feel that this is unnecessary. The proposed aid to state and local governments is also controversial as many Republicans are vehemently against bailing out blue states. A rather striking example of politics coming before the well-being of the community. The Republicans are also keen to include liability protection for businesses. This would make it significantly harder for individuals to sue business owners if they contracted coronavirus on site. This is possibly an important point, but it does not fit within a stimulus package that is supposedly supposed to help fuel a V-shaped recovery.

Some market watchers seem confident that a deal will be reached before the end of the year. I am not so sure: while the gulf between the parties has narrowed, it is still large. Mitch McConnell, the Senate Majority leader, is still focussing on a skinny $500 billion package rather than the bi-partisan suggestion of $902 billion.

President Trump would also have to sign-off on this deal. This creates additional risk: there has been lots of talk recently of the Trump administration adopting a 'burn the house down' strategy before he leaves the Oval Office. One way to achieve this would be to veto any agreed bill. While this seems like a farfetched outcome, this President has been unpredictable so this cannot be ruled out.

It is also not yet clear whether President-elect Biden will have the power to generate a bigger stimulus package as he has suggested. While he has stated his approval for a current package, he has made it clear that he will be seeking a bigger one as President. We do not yet know whether he would be able to get a deal with the new Congress. The two seats up for grabs in January are a big deal for the Biden administration. If they can be secured by Democrats, then he may have the power to pass a big package and pursue his other aims, like the Green New Deal. However, if the Republicans win these seats, it is hard to see how Biden will gain bipartisan support.

These hurdles mean that you might be hopeful for a deal in the next week and even for a bigger version next year. But it is far from clear whether either will appear. For now, I believe that it is safer to assume that Congress will do nothing. If a deal is reached, the markets will react positively; in the meantime, any news will cause some volatility but even if a deal is not reached, the market will probably not react bearishly. Nothing seems to be bothering US investors these days, so it is hard to predict.

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