And the winner is…?
At time of writing, the US elections were still undecided and, due to the surge in mail-in ballots, it may be a matter of days before a clearer picture emerges. So far, it looks like the polls overestimated Joe Biden’s lead over incumbent Donald Trump and the Democrats’ chance of controlling both houses of Congress. In other words, the race is much tighter than expected, even before results are contested.
Indeed, we seem set to be headed toward further near-term political tensions as Trump is vowing to bring a case to the Supreme Court. This may complicate bipartisan talks on a further round of support to households as existing measures fade. This is additional near-term risk going into the crucial winter shopping season. In any case, whoever wins the Presidency may well find it difficult to deliver on his promises given elevated political divisions and the narrow margin of manoeuvre afforded by Congress.
From a macro impact point of view, this may mean that while the focus up to now has been on fiscal support for households, attention next year may return to monetary stimulus, with the Federal Reserve the dominant factor in helping US GDP and employment recover from the covid-19 shock. The 2021 story should still be one of ongoing recovery from this year’s sharp economic shock, but fiscal support could take a back seat.
Near-term economic risks remain tilted to the downside. With coronavirus cases rising sharply again in the US, the risk is that the US follows Europe by introducing new restrictions on mobility and activity— if not at the federal level (that will depend on who is elected President), then at the state level.
More fundamentally, the political map shows a country with major divisions that overlap with sizeable economic and social challenges. This is a key underlying weakness of the US in the longer run.