Macroeconomy

US Congress applies balm to a wounded economy

Fed

While the fiscal package trashed out this weekend beat expectations, we are leaving our GDP growth forecast for the US next year unchanged at 4.7%.

Congress agreed this weekend on a new fiscal package to help deal with the strain the coronavirus continues to place on the US economy. The package, worth around USD 900bn, includes measures to support household demand, most notably one-off cheques of USD 600 per individual (half the amount of the previous cheque sent in the spring) as well as extended unemployment benefits until mid-March, with a federal top-up of USD 300/week (also half the amount voted in spring). The deal reached in Congress also includes new small business loans and funds to help accelerate vaccination efforts (inoculation programmes involving two vaccines have already begun) as well as other financial considerations such as more funding for schools.

 

While the size of the package is a touch above the amount we had factored into our 2021 growth scenario for the US (the cheques to households, worth USD170bn, are the main upside surprise), the elevated number of new coronavirus cases means our forecast for Q1 GDP faces downside risk; we might even see a negative print. All in all, we are keeping our central 2021 growth forecast for the US unchanged at 4.7%, which is well above current market consensus of 3.9%.

 

Our central scenario for 2021 remains that we will see a mini consumption boom in late spring/early summer once mass vaccination is achieved and less anxious consumers go out and spend some of the massive savings they have accumulated this year (US households accumulated an estimated USD1.5 trn in ‘excess savings’ in the first 10 months of 2020). The Federal Reserve should continue to play a supporting role, with ongoing quantitative easing and a promise to keep rates low ensuring that financial conditions stay very loose.

 

Based on our central scenario for the Senate to stay in Republican control after the Georgia run-off elections on 5 January, we do not think there will be additional fiscal support next year.

 

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