Differences between the two presidential candidates’ approach to the pandemic will have consequences for the US economy.
The number of new covid-19 cases in the US is reaching daily highs, with particularly steep increases in the Midwest. Once again, the US could be facing a dilemma between dealing with the sanitary measures needed to deal with a sharp rise in new coronavirus cases on the one hand and the effect of additional restrictions on mobility and activity on the other.
President Trump, who asserts that the US is “rounding the turn” on the virus, has long voiced his preference for allowing economic activity to continue normally. A few days ago, his chief of staff even said, somewhat awkwardly, that the virus “won’t be controlled”. However, Trump’s promise that a vaccine would be ready by election day has not been kept (something that could come to haunt him on Tuesday).
His Democratic opponent, Joe Biden, is adamant that if elected he will do more to curb the spread of the pandemic, although he has been relatively vague about whether he would go as far as a federal lockdown.
Reading between the lines and looking at the situation in Europe, we believe that a Biden win would make stronger restrictions on economic activity more likely after presidential inauguration day on 20 January unless the virus retreats significantly before then. To be sure, there would also be ramped-up fiscal support for employees and businesses affected by these restrictions, although the magnitude of the fiscal response could depend on the extent of partisan support from the Senate.
Bottom line, the resurgence of the coronavirus poses a downside risk to Q4/Q1 US GDP growth, adding to the risk of fiscal inaction during the lame-duck congressional session (November-December). In the longer run however, we still think we will see a deluge of economic support. If necessary, the Federal Reserve could be drafted in to help with more debt buying.