Pablo Pardo (Washington) | What if it turns out that we are going to come out of the Covid-19 recession too quickly? In Europe that sounds like a joke, of course, thanks to the disaster organized by the European Commission with the purchase of the vaccines, and the insistence of the northern EU countries that no funds should be committed for the revival of the lazy southern ones. But that is not the case in the US, where the vaccine campaign is going much faster, and the public authorities have not been shy about spending to stimulate the economy.
US stimulus package
Olivia Álvarez (Monex Europe) | Joe Biden’s proposed $1,9 Tr stimulus bill will run its race in Senate next week, as House Democrats passed the legislation on Friday. The package includes $1400 direct payments to most Americans, a $400 weekly jobless benefit and an extension of unemployment insurance programs to a larger share of eligible candidates. The bill also includes $20bn for Covid-19 vaccinations, $50bn for testing and $350bn into state and local aids. The plan also aims to hike the federal minimum wage to $15/hour by 2025, although this particular amendment hangs on a thin balance.
Salman Ahmed (Fidelity International) | Georgia run-off elections on 6 January handed the Democratic party effective control of the US Senate with a slim majority that will limit the ambitions of a Biden presidency. However, this will be able to boost fiscal spending to help the economy recover from Covid-19 and grow by more than 7% in 2021. This further strengthens the reflationary thesis, but means a potential taper tantrum is top of the list of factors we are watching.
“It would be a mistake to believe that anything US Congress approves will be a definitive solution for the economy, at least in the short term. As for the size that the economic aid should have, PIMCO believes that “an increase in public spending of 4% could serve to compensate for the economic damage in the short term”