As today marks President-elect Joe Biden’s official inauguration, the new leader will inherit several key market issues in the wake of Trump’s ending term. These include high stock markets, a large budget deficit, a weakening dollar, economic uncertainty, and a less powerful Federal Reserve.
Since the beginning of President Donald Trump’s term, the S&P 500 has soared up by 68%. This has been aided by massive fiscal and monetary stimuli and expectations of economic reopening following COVID-19 vaccinations. Additionally, low Treasury yields have increased stocks’ allure after the Federal Reserve slashed interest rates to zero.
2) First 100 Days
The first 100 days of Biden’s term may be more laden with problems than those of his predecessors. This is because he needs to stimulate the United State’s economy quickly. Originally this was proposed to be resolved by a $1.9 trillion stimulus package. However, as the Democrats hold only a slight majority in Congress, this assistance’s passing and final size may be uncertain.
3) The Dollars Halt
Additionally, Biden is inheriting a national economy whose currency has fallen 12% from last year. This weakness, however, aids in exportations by boosting U.S. products abroad. Additionally, it makes U.S. stocks more affordable to foreign buyers. However, U.S. yields have recently lifted this currency off of its lows.
Regardless of how the dollar fairs, the Biden administration maintains that it will be less likely to comment on the currency’s future fluctuations.
4) National Debt
Under Trump, the nation’s debt ballooned by almost 40% to nearly $28 trillion. This increase is mostly fueled by tax cuts in 2017 and additional spending to counter the corona virus’s economic hit. This debt is likely to continue growing under Biden, as seen by his pushing for a larger relief package, despite the costs of a higher debt burden. This threatens to tarnish U.S. government debt’s appeal, which may indirectleigh on the dollar’s attractiveness as a reserve currency.
5) Federal Balance Sheet
The Federal Reserve’s balance sheet is larger than before; another thing that the Biden inistration will gain, due to bloated spending as a result of the pandemic. However, this current onslaught of rampant spending may limit the central bank’s scope to maneuver in the future.
The early years of Trump’s presidency were marked by trade frictions between the United States and China. The last year of Trump’s term was marred by the economic concerns resulting from the coronavirus pandemic. Such policy-related uncertainties are currently higher than following 9/11 or the Great Financial Crisis of 2008, all of which Biden will have to cope with after he takes office.