The continuing back-and-forth on a next round of stimulus may be nearing its end this week as the Democrats have set a deadline to approve any deal prior to the election. The chances of getting a deal done have risen over the last few weeks as recent economic data has shown choppy economic activity. The U.S. economy is still recovering from its sharp decline in the second quarter, with the large amount of both monetary and fiscal stimulus greatly aiding the recovery. However, the velocity of this recovery has slowed as the initial jolt from stimulus has lost some momentum. Given the circumstances, fiscal stimulus is the better tool to get money where it is needed in the economy.
Any stimulus deal will give a boost to risk market prices and push long-end Treasury yields higher. Given the political uncertainties over the next few weeks due to the election, some additional stimulus now should provide an extra layer of protection as we enter the winter months still fighting the pandemic. The long-term repayment of the increase in deficits will have an impact on the economy for many years afterward.
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