Michael Townsend, Vice President of Legislative and Regulatory Affairs for Charles Schwab, Greg Valliere, Chief U.S. Policy Strategist for AGF Investments, and William Dudley, Former President of the Federal Reserve Bank of New York unpack the U.S. election results and what it means for taxes, fiscal policy, and the markets.
“Things are a little more clear than they were a few days ago,” says Townsend on the November 7th announcement that Biden would become the 46th president of the United States, after nearly five days of tallying ballots. The fate of the senate majority remains pending as both Georgia senate races will go to a runoff election in January 2021.
Valliere says that the tight senate race was actually a good outcome for the market. Many had predicted a blue wave in the senate and congress, which would have allowed the Biden administration a clear path to sweeping tax changes, potentially costly climate bills and more. Valliere suggests that ultimately, the nearly 50 / 50 split in the senate will force both left and right agendas to become more centric in nature and consequently lower the odds of dramatic tax hikes anytime soon.
Dudley, a former policy maker at the Fed, says that the Fed has pretty much done everything it can to be accommodating from a monetary policy perspective. With the economic boost of the initial fiscal stimulus package fading, Dudley thinks the markets may be facing a slump, especially as new COVID-19 cases rise and some states may be headed towards tighter restrictions once more.
Leaders of the Fed have already acknowledged their tolerance for debt in this kind of environment, coming out in support of additional fiscal stimulus to keep the economy moving. Some argue that the massive $2 trillion stimulus package introduced several months ago is overkill, as the vaccine’s readiness inches closer.
On Monday, November 9th Pfizer announced that their COVID-19 vaccine trials were nearly 90% effective, a number much higher than expected this early in the process. Steadily shrinking unemployment percentages, positive progress on the vaccine, and optimism from the still limping airline industry are all good signs for the economy, but Dudley says the the biggest benefit of additional stimulus is the much needed support for the low and middle class workers, who have been disproportionately impacted by the virus.
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