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With Democratic Convention Over, Focus Shifts to Republican Response: Week Ahead

The global impact of U.S. policy on the economy and trade in 2021 is still uncertain, but right now it looks like the battleground for the presidency will be centered on a national policy to fight the coronavirus.

The Covid-19 pandemic has affected not just on lives and health care everywhere, but also the global supply chains and world economies. A Bank of America Securities research note published Thursday points out that broken global and local supply chains will cause frictional inflation, adding that “wage increases will still be necessary to drive labor back to school and back to [the] office.”

At the virtual four-day Democratic National Convention that ended Thursday, much was said about President Trump’s lack of leadership in handling the pandemic—like the steps he failed to take.

Trump’s predecessor, Former President Barack Obama, sounded an even more dire alarm, noting that democracy itself is at risk. What wasn’t discussed were overall policy proposals, the cornerstone of the political rhetoric four years ago between then-Democratic nominee Hillary R. Clinton and the Republican candidate Trump. Former New York City Mayor Michael Bloomberg noted that wealthy individuals like him will see a rollback of Trump’s tax cuts and will pay higher taxes. But he didn’t say it as if it was a bad thing, more that it was needed to get the nation and the economy back on track. With what many view as Trump’s tear-down approach to governing, much is needed to help pay for infrastructure costs, whether that’s creating jobs to build and upgrade roadways or secure the Social Security safety net for retirees.

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Former President Bill Clinton pointed out that the U.S. is the only major industrial economy to have its unemployment rate triple in the wake of the pandemic. Data compiled by Harry Holzer of Georgetown University for the Brookings Institute indicates it’s far worse—the U.S. unemployment rate quadrupled from 3.6 percent to 14.7 percent over the January-to-April period.

What Trump has to say in his defense comes next Thursday night when, as the incumbent and presumptive nominee, he accepts the Republican party’s nomination.

Conventional wisdom dictates that Wall Street firms prefer Republican rule to protect their profits as Democrats seek to ensure the financial safety of the average Joe on Main Street. Yet Jaret Seiberg, a managing director tracking financial services policy for Cowen & Co.’s Washing Research Group, believes the “downside risk of a Biden victory may not be a great as some fear.” That’s probably true, too, “even if the Democrats sweep the White House and Capitol Hill,” Seiberg added.

With most of the DNC focused on Covid-19, “[t]his means Democrats are not going to have a mandate out of the election for the most onerous policy options for financials and housing, such as breaking up the banks or imposing a financial transaction tax,” Seiberg said. In fact, while there are likely some negative policy changes, there appears to be consensus agreement on the need for additional stimulus that should benefit credit quality and boost credit demand, and in turn reduce the threat of long-lasting economic duress, he said.

“Democrats are telling us that the laser focus on Covid-19 means they will have to advance Covid-19 legislation. To us, that mostly means more stimulus for the unemployed, for the under-employed, for struggling small and mid-sized businesses and for local governments…. It means individuals and businesses are less likely to default on their loans. It means demand for new credit will be higher,” Seiberg said.

In short, a new wave of economic stimulus should drive stronger economic growth, he said.