Client Newsletter 02/17/2021: Covid Relief Path and the Economy
Covid Relief Path and the Economy
Top Biden administration agenda items: first is the $1.9T Covid rescue package. The Democrats are moving ahead using a process called reconciliation that allows them to pass legislation with no Republican support. Just as the national recovery letter shape is a "K" so is the state/municipal recovery. As we read about the surplus in San Francisco’s budget this year, the future is more cloudy for the city budget with predictions of deficits.
This unexpected San Francisco budget surplus is due to increased property taxes and federal aid. Other states, regions and municipalities are suffering more significantly. Interestingly, the Biden administration is using bipartisan mayors and governors to pressure Republican legislators to support aid. Polls show Americans favor the rescue plan by over 60% across Democrats, Republicans and Independents.
Further federal fiscal aid, assurance from the Fed for continued low interest rates, and an expected burst of recovery spending on the part of consumers and businesses are keeping asset prices inflated. Intermediate and long term interest rates have been climbing along with oil and commodity prices. Generally this points to a recession recovery similar to recoveries previous to 2009-2020, a recent time period since the Great Recession which featured a recovery that was sluggish at best. The $1.9T package is a consequence of going small after 2008-09 when Biden was Vice President. The economic view of inflation has changed most notably by Treasury Secretary Janet Yellen who has spent most of her career fighting inflation and now is much more concerned about going too small in order to avoid the longer term damage underemployment can do to the economy.