US: Split government not toothless on growth

In Short

Narrow margins in several key swing states sent Democratic candidate Joe Biden to the White House. However, Republicans are more likely than not to keep the majority in the Senate, with voters in Georgia having their final say on two decisive seats on Jan. 5.
Focal Point


  • Without the control of the Congress, President Biden may still find a compromise with the Republican controlled Senate on a US$1tn fiscal package, including funding for small business and tax cuts for low to middle incomes.
  • Industrial policy to confront China on IT and renewables may be another area of cooperation. Infrastructure investment may come to the fore again, but disagreement on the priorities and funding are big roadblocks.
  • The lower than expected fiscal boost and the still uncertain short-term economic outlook imply that the Fed keeps a big responsibility in maintaining easy financial conditions, but its effective contribution to growth is more uncertain.
  • A moderate fiscal stimulus and a reduced political risk premium – alongside mounting vaccine hopes – should allow for a further yield curve steepening and support the rotation to more cyclical risk assets. Easing uncertainties in trade policies and persistent Fed accommodation point to moderate further USD weakness.

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