The past week has been an exciting one in US politics. Uncertainty has receded and markets have reacted favourably to the US election result. The obvious question for us as investors is: what are the economic ramifications of a Biden win?
The consensus view seems to be that Biden will bring some measure of normality back to the presidency, and greater consistency to executive-level economic policy – but a deeply divided government will leave him unable to legislate large changes on tax and spending. Expectations are for steady (but lower-than optimal) US economic growth and persistent zero-rate policies from the Fed (which recently announced it will keep rates at-or-around zero until it sees 2% inflation and a suitable level of employment). A divided government also probably means a smaller COVID relief package than Biden would have liked, but we should still get a fiscal stimulus nonetheless.
Looking to next year, in our view two factors indicate the US economy could see a stronger recovery than expected. First, the last few years under President Trump have seen Americans amass an impressive stockpile of savings which is waiting to fuel the economic recovery.
Second, an unexpectedly effective coronavirus vaccine looks imminent thanks to pharmaceutical giant Pfizer and bio-technology company BioNTech. Markets are already responding positively to the vaccine news, with volatility dropping to far more normal levels than we have seen recently.
Despite the pandemic, social disruption and economic pain of 2020, President-elect Biden could kick-off his presidency in 2021 with a much stronger than expected economic recovery in the US. And what’s good for the US economy is good for the world economy.
It’s early days and still too soon to call, but a strong US recovery in 2021 might be remembered in years to come as the beginning of the ‘roaring 20s’…
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