Daily Commentary BY THE CURVE TEAM –

US Fiscal Policy Uncertainty

8th of October, 2020

In contrast to Australia, who just released their budget for 2020-2021, the Democrats and Republicans in the US are struggling to agree to additional stimulus measures.

For the last month or so, Republicans and Democrats have gone back and forth trying to agree on stimulus measures for the US economy. The proposed size of the stimulus from the Democrats is over $2 trillion (around 5% of GDP), whereas the Republicans want a smaller amount.

If the uncertainty continues, American individuals and businesses stand to miss out on much needed financial assistance. Adding to the uncertainty is Trump’s volatile stance, which yesterday indicated there would be no stimulus agreement until after the election in November, but overnight changed to being open to immediate spending measures.

The disagreement is having knock on effects for the Federal Reserve. The minutes from their recent meeting highlighted that there was no change in the Fed’s asset purchase programme, but part of the justification for this was the expectation of fiscal stimulus.

Should disagreements on fiscal policy prolong, the Fed may opt to do more. It appears expanding quantitative easing will be their primary method should it be required.

Domestically, payrolls were down 0.4% over the four weeks to September 19. Positively, payrolls were up 0.2% in the final week to September 19.

Victoria remains the laggard, with payrolls 9.2% below pre-Covid levels. Not including Victoria, payrolls have recovered 68% from the Covid lows, whereas by including Victoria they have only recovered 52%.

There will be opposing forces for payrolls over October. JobKeeper will be pared back but hopefully Victoria will be able to reach a 14 day moving average below 5 so lockdowns can be gradually unwound, which should support jobs.

Josh Stewart

Client Relationship Manager