US Presidential Election: US Economic Update – October 2020

Sustained large budget deficits likely regardless of the victor, with Biden the frontrunner.

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Key highlights

  • Polling points to former Vice President Biden winning the 3 November Presidential election. Democrats may also take control of both houses of Congress which would make a further large COVID-19 support package in early 2021 likely (assuming it is not passed pre-election), as well as further net stimulus down the track with large tax increases being offset by larger spending increases. Mr Biden is also likely to take a less aggressive tack on trade/foreign policy issues, and while pressure on China over trade & technology issues will remain, it will probably be less confrontational.
  • If Mr Biden wins but Republicans retain control of the Senate then the risk of on-going budget stalemate is high. The chances of a further COVID-19 package (if nothing happens pre-election) would be uncertain. This would leave Mr Biden to pursue goals which can be achieved through executive action (foreign policy, including trade, regulatory interpretations).
  • Of course President Trump defied the polls last time; like Mr Biden he also wants to spend more, but would like further tax cuts as well. With it very unlikely that the Republicans can reclaim the House of Reps, getting this agenda through would be problematic, although there is still a deal that could be done on COVID-19 stimulus (again assuming something doesn’t occur pre-election).
  • Regardless of who wins, the Fed is set to keep rates low for an extended time and the USD is likely to weaken in 2021.
  • Delays in counting early (in person or mail) ballots may mean that the result is not known until after 3 November. It is believed that these votes are more likely to support the Democrats, meaning that President Trump may have an early lead in the count, that may be overtaken later by Mr Biden. There is the possibility that legal action (similar to the 2000 Florida count) may delay the final result, which could create additional volatility in financial markets.

Find out more in NAB’s US Economic Update – October 2020