With the election over, a lingering uncertainty has been removed as expectations of how fiscal policy and stimulus programs funded by government debt may evolve. Unfortunately, along with the increased clarity of possible new government policy, other things are becoming clearer as some economists and market analysts project eventual higher taxes along with an expanding fiscal debt.
A politically divided congress won’t be able to solve this problem but will serve to moderate or balance what actions are taken to address the most pressing issues.
The delay in getting a second stimulus bill through Congress hindered markets throughout October due to indecisiveness among politicians. Millions have been awaiting a second wave of stimulus benefits in order to meet expenses. With no new bill in place, a number of relief programs will expire at the end of the year which have benefited both individuals and small businesses.
Stagflation has resurfaced as a viable concern among economists, which last occurred in the late 1970s. Known as the occurrence of inflation rising faster than economic growth, the phenomenon can adversely affect consumers.
A weakening U.S. dollar contributed to emerging equity market performance in October, as emerging currencies and stocks fared better than the U.S. and developed international equities.
Market dynamics started to shift in October as anticipated election results were expected to offer a long-awaited secondary stimulus program, reigniting economic expansion throughout the economy. Fiscal policy initiatives have become forefront as the Fed meddles with monetary policies that have essentially become exhausted.
Countries throughout Europe announced national lockdowns in order to stem a rapid resurgence of the COVID-19 virus in Europe. Some fear that similar restrictions and state-imposed lockdowns may resurface in the United States.
COVID-19 has brought about possibly some of the largest shifts in consumer trends ever, as demand for online shopping, eating out, and energy consumption have dramatically changed in a matter of months. Gasoline usage cratered as electricity usage simultaneously soared, the result of millions of workers transitioning to home-based offices.
As probable impasses are expected with the recently elected Congress, many believe that any immediate financial assistance may need to come from the Federal Reserve, which employs no political alliance or influence, meaning that it can help fund critical programs long before politicians get to it.
Kent G. Forsey, CFP®
Sources: Federal Reserve, U.S. Energy Departments, OneBlueWindow, LLC.