Bidenomics: what the experts think
● Positive outlook “As the US election headed for a nail-biting and drawn-out conclusion” last week, “there was a decisive shift in financial market sentiment”, said Michael Mackenzie in the FT. In the lead-up to the vote, investors had been bullish about the prospect of a Democrat “blue wave” – winning both the White House and Congress. When that prospect receded, there was initial angst about a stalemate. But it didn’t last long. Markets were soon embracing the likelihood of a divided US government with gusto – focusing on the “positives for companies”, which include probable “constraints” on higher taxes and a reduced chance of “tougher regulatory threats” for Big Tech, banks, healthcare and energy companies. Overall, the major US indices put in their “best week since April”, reported The Wall Street Journal. The S&P 500 shot up 7.3%; Nasdaq, by 9%.
● Step forward, Jay
“It’s kind of the best of both worlds,” former hedge-fund manager Mike Novogratz told The New York Times. But the “lack of a blue wave will have consequences”, said Larry Elliott in The Guardian. The likely “gridlock in Congress means more of the onus for stimulating the economy will fall on the Federal Reserve”, the US central banking system. Indeed, “the most important economic actor in the years ahead” will not be the new US president, but Jerome “Jay” Powell, the current chair of the Fed. Yet there’s only so much he can do. “Monetary policy”, which is Powell’s responsibility, “is no answer to America’s need to renew its infrastructure or to make its welfare system more generous”. For that, you need “fiscal action” in the form of a coherent tax and spending policy.
● A sorry state
Studiedly “avoiding mention” of last week’s election, Powell left interest rates unchanged (at between zero and a quarterpoint) and made no addition to quantitative easing, reported The Economist. But he continued to press Congress for “further stimulus”. If new vaccine hopes come to fruition, recovery may prove better than “weak”. But there’s a lot of catching up to do. “Look beyond the frothy stock market... and you will find that much of American business is in a sorry state.” Whatever form Bidenomics takes, it has its work cut out.