Norway

Institutional Investor
Investment Professional
Individual Investor
The Norway website is not available. You will be redirected to the Luxembourg website which contains funds approved for marketing in Luxembourg, and where several of these funds are not registered for marketing in Norway.

Norges nettside er ikke tilgjengelig. Du vil bli omdirigert til Luxembourg-nettstedet som inneholder midler godkjent for markedsføring i Luxembourg, og hvor flere av disse fondene ikke er registrert for markedsføring i Norge.

Elections? Vaccines? What They Could Mean for the US Economy

10 November 2020

3 min read

Eric Winograd| Director—Developed Market Economic Research

Two recent developments could have big implications for the US economic outlook: general elections and news of very promising progress on a COVID-19 vaccine. To understand the ramifications, we have to distinguish near term from longer term.

We’re not revising our economic forecasts just yet, as we wait for more confirmation on both fronts. However, the benchmarks that we need to follow in the next few weeks are much clearer today than they’ve been in months.

Two Factors, Two Distinct Potential Impacts

As we see it, the two factors point in opposite directions. The likely election outcome, pending legal challenges and runoffs, has Democrat Joe Biden winning the presidency and Republicans retaining Senate control. This balance of power will likely create headwinds for more fiscal stimulus.

The vaccine news, in contrast, is unambiguously positive. A better vaccine available to more people faster than previously expected would be a huge boost to public health and the economic outlook, even if it could take many months to distribute widely. Simply put, if the health crisis ends sooner than expected, the amount of near-term stimulus needed to shore up the economy may be smaller than previously thought. That’s good, because a smaller stimulus package is what we’re likely to get.

So, how do we balance these two developments?

Near Term: Vaccine Success vs. Stimulus Headwinds

The key is to consider two different time horizons. Near term, even if the vaccine is successful, more stimulus is needed. Ten million people are out of work and roughly 21 million are still receiving unemployment support.

While progress toward an effective vaccine is excellent news, the vaccine itself won’t come soon enough to address near-term economic headwinds. Distribution of a vaccine next year doesn’t put people back to work today. It’s going to take time for any vaccine to impact growth directly, and government support remains essential to keeping the economy afloat in the meantime.

As we see it, however, the likelihood of additional stimulus has declined. Gridlock complicates things in Washington, DC, and even if all parties agree on the need for stimulus, different policy priorities may make it hard to design a package that can pass both houses of Congress.

We’re not giving up on stimulus, but even if a package is passed, it will probably be smaller than it would have been had the election resulted in single-party control of Congress and the White House. That’s why the vaccine news is so important in the short term—if the COVID-19 crisis can be addressed sooner than previously thought, a smaller stimulus package may be enough to get the job done.

Longer Term: Policies Need to Be Joined at the Hip

Over a longer time horizon, different issues are at play. The economy has been stuck in a low-growth, low-inflation rut for more than a decade, and we believe long-term fiscal support gives the US economy its best chance at breaking out of that rut.

“Joined at the hip” is how we’ve described the policy mix most likely to achieve that long-term acceleration. Both fiscal and monetary policy must operate with the same objective—reflation—in order to maximize the chances of achieving it.

A divided political establishment makes long-term fiscal support less likely and a pivot to austerity in the face of rising deficits and debt more likely. That reduces the probability of a successful reflation. We’re confident the Fed will do its part, but the central bank can’t do it alone. Without fiscal support, we expect the economy to struggle to move to a sustainably higher growth trajectory over time.

To sum things up, if it’s confirmed that we’re on the cusp of developing an effective COVID-19 vaccine, it would be wonderful news that would improve the near-term outlook—even if prospects for fiscal stimulus have dimmed post-election. But a vaccine won’t cure all the US economy’s problems over the long run. Low growth and low inflation prevailed before the crisis, and without more fiscal policy help, they’re likely to prevail post-COVID-19, too.

The views expressed herein do not constitute research, investment advice or trade recommendations, and do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time.

About the Author

Eric Winograd

Eric Winograd is a Senior Vice President and Director of Developed Market Economic Research. He joined the firm in 2017. From 2010 to 2016, Winograd was the senior economist at MKP Capital Management, a US-based diversified alternatives manager. From 2008 to 2010, he was the senior macro strategist at HSBC North America. Earlier in his career, Winograd worked at the Federal Reserve Bank of New York and the World Bank. He holds a BA (cum laude) in Asian studies from Dartmouth College and an MA in international studies from the Paul H. Nitze School of Advanced International Studies. Location: New York

This is a marketing communication. This information is provided by AllianceBernstein (Luxembourg) S.à r.l. Société à responsabilité limitée, R.C.S. Luxembourg B 34 305, 2-4, rue Eugène Ruppert, L-2453 Luxembourg. Authorised in Luxembourg and regulated by the Commission de Surveillance du Secteur Financier (CSSF). It is provided for informational purposes only and does not constitute investment advice or an invitation to purchase any security or other investment. The views and opinions expressed are based on our internal forecasts and should not be relied upon as an indication of future market performance. The value of investments in any of the Funds can go down as well as up and investors may not get back the full amount invested. Past performance does not guarantee future results.

This information is directed at Professional Clients only and is not intended for public use.

Elections? Vaccines? What They Could Mean for the US Economy

Two Factors, Two Distinct Potential Impacts

Near Term: Vaccine Success vs. Stimulus Headwinds

Longer Term: Policies Need to Be Joined at the Hip

More For You