HedgeTalk: Is There Finally Some Clarity on the Horizon?
By: John Trefethen, Director & Co-Founder
Since the onslaught of COVID-19, much of the world’s economy has been living with uncertainty on when the economy will rebound. Adding to the economic fog was this summer’s civil unrest across much of the country as well as the uncertainty of the outcome of the US presidential election and overall balance of power in the US government. With the presidential election now finalized (recounts and litigation aside) with Democrat Joe Biden declared the winner, a United State Senate that appears will be controlled by the Republicans by the narrowest of margins, a shrinking majority of Democrats in Congress, a COVID-19 vaccine made available to the public now appearing to be imminent, and a new fiscal stimulus package now more likely to pass – economists are now more bullish than since the beginning of 2020 that there will be a steady recovery of the US economy.
A recent survey of 65 business and academic economists conducted by the Wall Street Journal shows that the amount of stimulus the economy needs to recover from the shock of the coronavirus is more modest than what was earlier expected. Earlier this fall Democrats were seeking a stimulus bill that exceeded $2 trillion while Republicans pushed for a bill closer to $650 million. With greater consensus now amongst economists that the economy will recover more quickly than first expected, the likelihood that a stimulus package will pass the split US government becomes more likely.
Forecasters in the survey now project an unemployment rate of 6.7% by the end of 2020, down from 7.8% that was projected in last month’s survey. Also derived from the survey is that the forecasters now see diminishing odds that the US will slip into a recession. Below is a graph showing the average probability of the US being in a recession within the next 12 months:
Source: Wall Street Journal Survey of Economists
In spite of the positive survey of economists, we are not out of the woods. With currently a new spike in COVID-19 cases also comes the prospect of renewed COVID-19 related lockdowns poised to inflict additional damage to the economy. We should all still be prepared for volatile markets as we work through the next 3-6 months. However, further out on the time horizon should be smoother markets as the new balance of power takes effect in Washington DC and COVID-19 vaccine distribution is put into action.
Contact the author:
John Trefethen, Director & Co-Founder
Megan Roth, Marketing Generalist