Stimulus Package is Back on Track
Author: Greg Valliere
June 12, 2020
AFTER LAST FRIDAY’S JOBS REPORT, deficit hawks proclaimed that there’s no need for additional spending. But that sentiment lasted for less than a week — and now it’s clear that another stimulus package is back on track.
THERE ARE TWO REASONS why a $1 trillion-plus deal is likely to win enactment by early August —
First, the pandemic obviously isn’t over yet. New cases are spiking (in part because of more testing), and may stay at high levels because social distancing was ignored in recent protests. People are still tentative about going to restaurants, malls or on trips (the battered airline stocks are a barometer).
A V-shaped recovery never seemed very likely, and now a fresh wave of virus anxiety has Fed Chairman Jerome Powell worried about the considerable downside risks to the economy and the markets. His somber tone this week was warranted.
The Fed will lend extensively, but Powell insists that Congress also has to act. And
Treasury Secretary Steven Mnuchin has been increasingly adamant this week that another stimulus package is virtually mandatory as state and local layoffs loom this summer.
Second, the three key factions in the stimulus debate all have skin in the game, and will push for their agendas:
For Nancy Pelosi and the Democrats, massive aid to state and local governments is the top priority. They’ll win at least $500 billion, but that may not be enough.
For Mitch McConnell and the Republicans, some type of liability protection for companies is a “must pass.” The details aren’t clear — will there be a federal fund to aid companies that are sued? — but there will be some type of lawsuit protection in the final measure.
For Donald Trump, the focus will be on tax cuts — a lower payroll tax rate isn’t out
of the question, as well as a tax bonus for people who return to work, and a
possible tax credit for entertainment and dining out.
ALL OF THE PLAYERS are willing to consider another cash payment to individuals, perhaps not as generous as the initial $1,200 checks. A sticking point will be unemployment benefits, which expire at the end of July. Something far less than the initial $600 per week is possible, but the focus will be on incentives to get people back to work.
DEFICIT BE DAMNED: With the passage of each new stimulus package, grumbling increases over the deficit, but Trump knows that more spending is needed to get the economy growing in time for the Nov. 3 election. In fact, we don’t rule out still another stimulus package this fall if the economy sputters.
POLLS SHOW THAT TRUMP is hopelessly dated on racial issues, and he has generated deep antipathy from the military brass. So he needs to get GDP and employment amped up, fast — it’s the only path to his re-election. Trump will embrace more spending and Congress will comply.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
©2022 AGF Management Limited. All rights reserved.