Does Biden Have Options as a First Quarter Slowdown Looms?
Author: Greg Valliere
November 23, 2020
WINTER IS COMING: Despite the wonderful news on vaccines, there’s a growing fear — especially in Joe Biden’s camp — that first quarter economic growth could be so soft that recession fears will increase.
WITH COVID CASES EXPLODING in the past few weeks, an economic slump is virtually certain; the issue is whether there will be a slowdown or a full-fledged recession. The first quarter would be a logical time to take a recession, but Biden obviously wants to avoid layoffs, small business failures, foreclosures and bankruptcies.
BIDEN’S ADVISERS ARE SEETHING over the decision by Treasury Secretary Steve Mnuchin to end several Federal Reserve lending programs, while taking back funds that have not been used by the Fed. Mnuchin insists this is not a political move, but Biden’s aides vehemently disagree.
BIDEN HAS OPTIONS: The most obvious one, of course, would be the enactment of a stimulus bill. His advisers are frustrated that Nancy Pelosi didn’t take yes for an answer in October, but that’s a moot point now. They would accept a package of about $1 trillion before Congress adjourns in mid-December; they think a handful of moderate GOP Senators would go along.
WITH MILLIONS OF AMERICANS about to lose unemployment benefits by the end of this year, Biden would take a modest package of aid now, sources tell us. Then he would wait for the Jan. 5 Georgia runoffs, hoping that the Democrats take both seats. That would give Democrats control of the Senate, which theoretically would pass another — more generous — stimulus package later in the winter.
DOES BIDEN HAVE OPTIONS IN THE MEANTIME? The New York Times reports this morning that his advisers are looking at extending moratoriums on evictions and foreclosures, along with deferral of student loan payments and a moratorium on payroll tax payments, which Donald Trump tried (with little success).
WE DON’T RULE OUT A $1 TRILLION stimulus deal in December, perhaps combined with a spending deal that would avoid a government shut-down. The deadline for that is midnight on Dec. 11, but there could be a “kick the can” delay, leading to a deal just before Christmas or in January.
THE KEY, IN OUR OPINION, is the dynamic between Biden and Sen. Mitch McConnell. They have a reasonably good relationship and both are skilled negotiators. Could they reach a stimulus agreement in the next month? If they do, the impact of the first quarter slowdown could be muted. If they don’t, it could be a long bitter winter before vaccines arrive for everyone by early spring.
BOTTOM LINE: A “skinny” bill — coming later rather than sooner — is still the best bet. But with widespread economic hardship looming, let’s go out on a limb: we think there will be a Biden-McConnell deal in December which would represent a fresh start for both parties, sending a very positive signal to the markets.
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