Morgan Stanley
  • Thoughts on the Market
  • Jun 17, 2020

Another Round of U.S. Pandemic Relief?

With Michael Zezas
U.S. Public Policy Research for Investors


Two common doubts about another round of fiscal stimulus center on the politics of passage and election year strategy. Here’s why Congress could agree on a package.

In this Thoughts on the Market series, Michael Zezas offers perspective on how U.S. public policy affects equity and fixed income markets, including trade tensions, infrastructure and government policy. Listen to this week’s update.

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Current Episode Transcript

Welcome to Thoughts on the Market. I'm Michael Zezas, Head of Public Policy Research and Municipal Strategy for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the intersection between U.S. public policy and financial markets. It's Wednesday, June 17th, at 11:30a.m. in New York.

Morgan Stanley's strategy and economic teams this week released their mid-year outlook. Our team continues to see a V-shaped economic recovery, meaning the recession was sharp but likely short. Consequently, the outlook remains bright for risk assets, namely corporate credit and equities. But this view in part hinges on a key view of ours: that Congress and the President will deliver another round of fiscal stimulus this summer, building on the CARES Act from this spring. It's a position we have confidence in, but let's check some potential blindspots in the form of two common pushbacks we've been hearing.

The first is that it's an election year and the platitude is that election years are too political to get big pieces of legislation done. We don't see the wisdom in that logic. And while fiscal expansion in divided governments is rare, it is common as a reactive measure to a recession. So we see scope for parties to focus on areas of agreement, adding up to about a trillion dollars of spending.

The second pushback comes from recent news that Senate Republicans want to wait to start negotiating another round of stimulus. This "wait-and-see" approach is based on the idea that the economic recovery may be strong enough that more stimulus isn't necessary. Yet we don't see how waiting will help. The unemployment rate is still in double digits and there's signs of Covid-19 reemergence in both Democratic and Republican leaning geographies. Meanwhile, key programs like small business loans and supplemental unemployment benefits are set to expire this summer. So to us, this wait and see approach is likely more about Republicans wanting to drive the stimulus agenda, than start negotiating now on the Democrat's terms, which were set out in their three trillion dollar proposal from earlier this month.

So we think more fiscal aid is on the way, but we of course must and will keep checking our blindspots.

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