Congress Debates Stimulus, Fed Mulls Moves, EU Stimulus News
In today’s Steady Investor, we look at key factors that we believe are currently impacting the market and specifically evaluate the potential stimulus spending ideas and plans in the U.S. and Europe, such as:
- The debate over the next round of economic stimulus in the U.S.
- The Fed is set to discuss additional monetary accommodation
- European Union leaders agree on a $2 trillion spending package
Debating the Next Round of Economic Stimulus – Congress has a storied recent history of butting heads when it comes to agreeing on anything. But when it comes to the U.S. economy, virtually everyone is in agreement that more stimulus is needed. The trillion-dollar question is, what will that stimulus be? Though the Trump Administration has been pushing for a payroll tax cut, it appears as of this writing that the tax cut option is off the table for both Republicans and Democrats. Republicans have established their stimulus priorities: they want legal protections for businesses to reopen, billions to help reopen schools, possibly another round of stimulus checks, removing the extra $600 a week in unemployment benefits, and providing no new funding for cities and states. Democrats have said that no funding for cities and states was a non-starter, and they also want to extend the extra $600 a week in unemployment benefits – two areas of disagreement with Republicans. 1 We expect more debate and for the disagreements over stimulus to become a tense issue in the coming days, but it appears at this stage that more stimulus is a foregone conclusion, and it may top $1 trillion. The equity markets may have already priced-in some additional stimulus, so any positive or negative surprise on the size of the bill may impact markets in kind.
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Meanwhile, at the Federal Reserve… There are essentially two levers that the U.S. government can pull to release stimulus and liquidity into the economy and capital markets. ‘Fiscal’ stimulus is described above and is controlled by Congress. ‘Monetary’ stimulus happens independent of Congress and the Executive Branch and is controlled by the Federal Reserve. As Congress debates the next round of stimulus, Fed officials are set to convene at the end of July to discuss plans for additional monetary accommodation. All signs point to the Fed simply continuing existing facilities through September, with bond purchases, corporate bond purchases, and backstopping loans all part of the current approach. On the table for discussion at the late July meeting are how long to keep interest rates anchored to the zero bound, whether to change the duration of bonds they purchase (move to the longer end of the curve), and/or how to alter rate setting policy going forward.4
And Finally, to the Spending in Europe – It has been a week filled with stimulus spending ideas and plans, with Europe perhaps ‘taking the cake’ on making headlines. European Union leaders agreed on a $2 trillion spending package, which included the first-of-its-kind issuance of EU bonds (in the amount of $860 billion). In the United States, the U.S. Treasury issues Treasury bonds, which are seen as debt obligations of the federal government, and thus the nation and all of its states. Before this week, Europe had never taken the step of issuing an EU bond that was debt of the entire bloc of countries, largely because of resistance from larger and wealthier members like Germany. This bond issuance should be viewed as nothing less than a major breakthrough for the fiscal union of the EU, which many are calling Europe’s “Hamilton” moment – in reference to Alexander Hamilton’s historic move to have the United States absorb the debts of U.S. states.5 Now, the European Central Bank can purchase EU bonds with newly minted money, just as the Federal Reserve does, basically eliminating the risk of default.
There is no way to know
exactly how this pandemic will continue to impact markets and economies around
the world, but finding the right investment strategy can make a huge difference
when managing the highs and lows of the market. To help you learn more about
strategies that cater to different investment objectives, we have created our
Dean’s List of Investment Strategies.6
Our Dean’s List describes five of our investment strategies that are ranked in the top of their respective classes, according to Morningstar (as of 6/30/20).7 If you have $500,000 or more to invest and want to learn more about these strategies, click on the link below to see how they could potentially benefit you.
2 ZIM may amend or rescind the “Dean’s List of Investment Strategies” guide for any reason and at ZIM’s discretion.
3 These rankings may not be representative of any one client’s experience. In addition, they are not indicative of future performance
4 The Wall Street Journal, July 22, 2020. https://www.wsj.com/articles/fed-deliberates-how-and-when-to-roll-out-more-economic-support-11595410201
5 The Wall Street Journal, July 21, 2020. https://www.wsj.com/articles/eu-leaders-close-in-on-coronavirus-recovery-plan-deal-11595274568
6 ZIM may amend or rescind the “Dean’s List of Investment Strategies” guide for any reason and at ZIM’s discretion.
7 These rankings may not be representative of any one client’s experience. In addition, they are not indicative of future performance
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
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