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Collective "forcing the palace"? The Federal Reserve and Wall Street are putting pressure on Congress at the same time.
Sep 26,2020 09:02CST
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SMM: it has been five months since the US Congress launched four rounds of economic rescue packages totaling more than $2.8 trillion. During these five months, there have been endless calls for a new stimulus package, but Republicans and Democrats have been unable to agree on details such as the scale of the stimulus.

At a time when the Fed has largely used up all its policy tools and the outlook for vaccines remains uncertain, more fiscal stimulus is undoubtedly crucial to US economic growth and stock market performance. As a result, recently, the Federal Reserve and Wall Street investment banks have collectively "forced" Congress.

Investors who have watched nearly a dozen Fed officials speak in recent days believe they are familiar with the word "fiscal policy", with almost every Fed official stressing that the Fed has done its best and that the only thing it can do next seems to be to keep interest rates low for a long time, while the US economic recovery urgently needs a boost from fiscal policy.

In addition to the Federal Reserve, Wall Street investment banks can no longer sit still. Economists at Goldman Sachs released a report on Thursday that directly halved the U.S. economic growth forecast for the fourth quarter, from 6% to 3%.

Goldman Sachs analysts said in a report:

"the interim spending package will avoid a government shutdown before September 30, but it is clear that Congress will not introduce any additional fiscal stimulus now. This means that after the last round of additional unemployment benefits currently under way, any further financial support is likely to wait until 2021. "

Morgan Chase soon joined Goldman Sachs, and Michael Feroli, chief U.S. economist at Morgan Chase, lowered his forecasts for U.S. economic growth in the coming months in his latest report, mainly because the two parties failed to reach a fiscal stimulus deal. Feroli wrote:

"We have further lowered our expectations for an additional fiscal stimulus of $1 million to $1.5 trillion."

Although House Speaker Pelosi and Finance Minister Nuchin signalled on Thursday that they were willing to restart negotiations on a package that had been stalled since early August, there was no sign that the two sides were prepared to change their recent negotiating positions.

Feroli wrote that recent discussions show that there are still significant differences between the two sides, but he also pointed out that it is still possible to reach an agreement on the brink of failure.

Morgan chase now expects the us economy to grow at an annualised rate of 2.5 per cent in the fourth quarter of 2020, down from a previous estimate of 3.5 per cent. It also cut the growth rate in the first quarter of next year from 2.5% to 2%. The bank expects US GDP to fall 4.2 per cent this year, followed by 2.3 per cent year-on-year growth in 2021.

Feroli said that if the Democrats win the presidential election in November, the fiscal stimulus in the House of Representatives and Senate in 2021 will boost greater demand.

In addition to Goldman Sachs and Morgan Stanley, economists at Morgan Stanley, another Wall Street giant, also pointed out in mid-September that if Republicans and Democrats fail to agree on a new round of US fiscal stimulus, the time required for US economic output to return to pre-epidemic levels will be delayed by six months, while the recovery could be delayed by a quarter in the event of a smaller rescue package.

Morgan Stanley even pessimistically predicted that the two parties would not be able to reach any positive stimulus deal before the election.

Optimism in the US stock market is likely to fade at a time when Wall Street investment banks have slashed their growth forecasts.

Statements by the Federal Reserve and major investment banks and economists on the economy may put pressure on Congress to act.

Macro
Fed
stimulus policy

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