INSIGHTS

On November 09, 2020

Surveying the Scene

The FOMC statement was almost identical to its previous one issued in September – noting that the economy continues to recover but with activity below pre-COVID-19 levels. In both the statement and Chairman Jay Powell’s press conference, the Fed underlined its commitment to act as necessary to support the economy should conditions worsen. The quantitative easing program will continue at its current run-rate of ~$130 billion per month.

What about the Presidential race?

We'll aim to provide a clearer update once the dust clears and we have some more certainty to draw on, particularly if the tide turns and anything unexpected happens.

For now, we’re still waiting for official results in several states. Further ahead still there will be at least one Senate run-off election in January in Georgia, and that will determine the composition of the Senate come Inauguration Day.

The more likely winner at this stage is former Vice President Joe Biden, while the Republicans are the favorites to hold the Senate and (given historic run-off dynamics) the Democrats are looking at a smaller majority in the House.

What would a Biden win and a divided Senate mean?

If this is how the result ends up, Biden would replace President Trump in the White House, but the more ambitious aspects of his domestic platform (such as the multi-trillion infrastructure program, changes to the healthcare system and corporate and capital gains tax increases) would be more difficult to execute.

More immediately, an eventual COVID-19 relief package will likely be closer to $1 trillion rather than the more than $2 trillion that had been under discussion, given the need to win support among Senate Republicans.  

More eyes on the Fed?

Ultimately, this is perhaps the most subdued outcome from a fiscal stimulus perspective. This may put pressure on the Fed to maintain its accommodative bias, or even expand it if the economic situation were to weaken. A change of Fed chair would be less likely and, given his relative popularity on both sides of the aisle, President Biden nominating Powell for a second term as Fed chair in late-2021 would be the path of least resistance, in our opinion.

This would potentially provide continuity to markets and we would expect the environment to be supportive of credit markets. It would also mean that the Fed’s future actions may become much more newsworthy than they were last week. 

CRN: 2020-1109-8707 R

The opinions and views of this commentary are that of Insight Investment and are not necessarily that of Advisors Asset Management.