U.S. Economic Recovery Has A Long Way To Go: The New Fiscal Stimulus Bill Is Still In Trouble

Li Huihui believes that US stocks will continue to bear pressure in the short term, and there is still room for further adjustment. There is still 10% downward space for major stock indexes, especially for the technology-based NASDAQ index, there is still 15% room for decline.

On September 22, US Eastern time, US Federal Reserve Chairman Colin Powell and U.S. Treasury Secretary mnuchin jointly attended the hearing of the house finance committee of the United States Congress, and the signals released at the meeting were of global concern.

Powell reiterated at the meeting that the Federal Reserve will be committed to helping the U.S. economy tide over the new coronavirus pandemic, and outlined the actions taken so far. He said the U.S. economy has improved significantly, but the road to recovery is still very long and needs further support from fiscal policy. Mr. mnuchin said he and the White House are still seeking an agreement with both parties in Congress on a new stimulus bill.

However, the analysis pointed out that due to the pending Supreme Court justices, a new round of stimulus plan to deal with the new coronavirus may be difficult to come out before the US election in November.

In addition, although the Federal Reserve "Dove" four, but the U.S. stock market in September continued to shock. Therefore, analysts believe that the new policy of the Fed will be difficult to continue.

The U.S. economy is beginning to improve

Since the outbreak of new pneumonia, the Federal Reserve has reduced short-term interest rates to near zero and launched 13 emergency loans and liquidity tools to ease market pressure.

Earlier, the Federal Reserve has revised its "long-term goals and monetary policy strategic statement" on August 27, US Eastern time. According to the Federal Reserve's "open market" statement, the Federal Reserve will seek to achieve its "open market" target. Therefore, "when inflation continues to be below 2%, appropriate monetary policy should try to push the inflation rate above 2% for a period of time.". It also means that the FOMC will not raise interest rates until inflation rises above 2%.

Powell pointed out that many of the recent healthy economic data benefited from the $2.3 trillion stimulus bill approved by the U.S. Congress in March to deal with the new coronavirus. "The result is not only a rebound in employment, but also a gradual increase in personal income and personal savings. These factors enable the U.S. economy to be "resilient" to deal with loan defaults and other problems that may arise when the Great Recession strikes.

Li Huihui, a senior financial expert, told reporters in the 21st century economic report that the effect of the Fed's support tools such as interest rate cut and quantitative easing in March was very obvious. Li Huihui added, "the ISM manufacturing and service industry index has maintained above 50, the unemployment rate has continued to drop from double-digit to 8.4%, and consumer spending has also been steadily rising. It is expected that the GDP growth rate in the third quarter of this year will return to positive and rise sharply to 20%." According to the latest report released by Goldman Sachs, US GDP growth rate will rebound to 35% in the third quarter of this year. In the past two quarters, GDP fell by 32.9%.

Powell also said at the hearing that the U.S. economy has improved. "Economic activity has picked up from a sluggish second quarter level. At that time, most sectors of the U.S. economy were shut down to curb the spread of the virus. At present, many economic indicators have shown obvious improvement. "

However, Powell pointed out that the United States "employment and overall economic activity are still far below the level before the epidemic, and the road ahead is still full of uncertainty".

He also stressed that the U.S. economy will eventually fully recover from this difficult period. "We will remain committed to using tools to support the economy as long as necessary."

It is reported that the Federal Reserve's support plan is likely to provide more than $2 trillion of funds at all levels, but some of the funds are less utilized. The main street lending program for small and medium-sized enterprises can provide up to $600 billion, but only about $2 billion has been used so far, and the tool that the Federal Reserve can purchase corporate bonds in the primary market has not been used.

Mr Powell said the support tools have released about half of their potential funds in general and will be on call if market pressures return.

Although the Federal Reserve still has "backhand", Powell believes that the U.S. economy still has a long way to go to fully recover from the epidemic and needs further financial support. "The outlook for the U.S. economy will depend on the effectiveness of epidemic prevention and the policy actions of governments at all levels. In some cases, direct financial support would be better than fed lending. " He said.

Chicago Fed chairman Evans said on the 22nd that if the U.S. Congress fails to pass a fiscal plan to support the unemployed and state and local governments, the U.S. economy will face the risk of a longer and slower recovery, even if there is no complete recession. "Financial support is fundamental."

According to Evans' prediction, if the unemployment rate in the United States is to fall to 5.5% by the end of 2021, at least $500 billion or $1 trillion of fiscal stimulus will be needed.

Mr. mnuchin said he and the White House are still seeking an agreement with both parties in Congress on a new stimulus bill. "The president and I remain committed to supporting employees and businesses. I think a targeted package is still needed and the government is ready to reach a bipartisan agreement. "

Li Huihui stressed to reporters that financial support is very necessary. "The Federal Reserve has lowered interest rates to near zero, and further monetary policy stimulus risks falling into a" liquidity trap. ". In order to avoid this risk and effectively boost the economy, we need strong fiscal policy stimulus and enhance the multiplier effect of government expenditure by various means, such as tax reduction and fee reduction, opening up monopoly areas, direct cash return, infrastructure and public facilities investment. However, at the same time, the Federal Reserve also needs to turn monetary policy into unconventional as soon as possible, and adjust its structure. For example, the scope of government's purchase of assets should be expanded to risk assets, the purchase of short-term debt should be increased, and the transition from monetary easing to targeted credit easing should be carried out. "

The new fiscal stimulus bill is still in trouble

However, since July, the discussion on the scale and scope of a new round of fiscal stimulus bill has been stagnant in the US Congress, and it is still unclear when the new stimulus bill will be introduced.

The analysis points out that after the death of Supreme Court Justice Ruth Bader Ginsburg, the candidate to replace Ginsberg has become a new point of divergence between the two parties in the US Congress, which may affect a new round of stimulus bill negotiations.

A world bank analyst said U.S. President Trump's attempt to quickly fill the gap left by Ginsberg's death could overshadow the prospect of a stimulus bill ahead of the November 3 election.

TD securities analysts also said in a report that Republicans and Democrats in Congress, who have been deadlocked on a new round of stimulus bills, are now focusing on the fight for a vacancy in the Supreme Court, reducing the chances of the new bill being passed.

In a report, UBS economists wrote that the vacancy of Supreme Court justices may stimulate increased competition between the two parties and will replace issues such as the new coronavirus and international trade frictions as the main topic in the minds of voters.

Jim O & apos; Sullivan, chief U.S. macroeconomic strategist at TD securities, said, "while we expect the package to eventually come out, the possibility of not coming out before the election is greatly increased. Even before the Supreme Court suddenly became an issue, there was a possibility. "

Larry kudlow, director of the National Economic Council at the White House, played down the impact of the Supreme Court dispute. Asked whether it would make it harder for lawmakers to focus on another covid-19 bill, kudlow said it was "not necessary.".

"We've been thinking about another (1 trillion or 1.5 trillion) fiscal stimulus package, and the current impasse shows downside risks to the economy," Krueger said

In the Supreme Court, Sullivan & O would also argue that the Democratic Party might win a seat in the Senate. This result will increase the possibility of a larger fiscal stimulus, which in turn could have a significant impact on the pace of economic recovery.

If Biden's analysis of the president's bill in 2020 is likely to lead to a substantial increase in government spending, "Goldman Sachs said Goldman Sachs expects that this could prompt a faster than expected recovery in the US economy, bringing the time when the Fed needs to start raising interest rates "up to two years.".

However, analysts at UBS pointed out that if trump and the Republican controlled Senate put a conservative judge in the U.S. Supreme Court before the election, if the Democratic Party regains the Senate seat and the Democratic presidential candidate Biden defeats trump, "the democratic policy agenda will be more radical.".

Li Huihui said that the US economic recovery is still showing a good trend. "The economy is expected to rebound substantially in the third quarter, and real economic stabilization is likely to be in early 2021. According to his forecast, the GDP growth rate of the United States this year will be - 4.5%, and it will return to 5.8% in 2021.

US stocks continued to decline in September

From the market point of view, although the Federal Reserve's "pigeon sound" four times, but since the beginning of September, the three major stock indexes have continued to fluctuate, and the weekly line has fallen for three consecutive weeks, which is the longest decline cycle in nearly a year. Many highly sought after technology stocks have fallen by more than 20%.

Li Huihui explained to reporters that there are four main reasons for the recent correction of US stocks: first, the US Congress has not yet reached an agreement on a new round of fiscal stimulus bill; second, the collective correction of technology stocks in the main sector, which once set a record high for the NASDAQ index, has a great impact on the market; third, the downward trend of risk interest rates has reduced investors' expectations and improved the stock price valuation, However, the interest rate of 10-year Treasury bonds has risen to 0.7% in recent years and gradually stabilized, which has formed pressure on the discount valuation; fourthly, the approach of the US election has increased the volatility of the overall capital market.

Hong Hao, managing director of BOCOM international and head of research, pointed out that the Fed's September interest rate meeting disappointed the market. "This is a market where the Federal Reserve doesn't release water and tends to be self injurious. The logic of the so-called historical adjustment of monetary policy thought of the Federal Reserve is self contradictory. If the Fed thinks that its loose monetary policy can lead to re inflation of the economy, why should it emphasize that it will keep interest rates at zero for 2-3 years? If such monetary policy is ineffective, then why should it be implemented? So the market's disappointment is justified. "

Mike Wilson, chief investment officer and chief U.S. equity strategist at Morgan Stanley, believes that the latest adjustment is partly due to the rise in August driven by speculation by inexperienced retail investors. So, "a better way to think about it is that the current decline is just that we are back where we were before the rise, which might not have happened in the first place. In addition, the bull market will experience correction in the process, and this is what we see now.

Li Huihui also believes that US stocks will continue to be under pressure in the short term, and there is still room for further adjustment. The main stock indexes still have 10% downward space, especially the technology-based NASDAQ index still has 15% room for decline.

Li Huihui also said, "the short-term adjustment will be an opportunity for low absorption. It is estimated that the S & P index will reach 3600 points in the next 12 months, and there is 10% upward space from the recent point. He is optimistic about cyclical stocks and small and medium market capitalization stocks, and the plate is biased towards finance, industry, materials and medical treatment." (Editor: Xin Ling, if you have any questions or suggestions, please contact xinlingfly2007 @ 163. Com)