Commenting on the anniversary of President Biden’s first year in office, Steven Bell, Chief Economist, BMO GAM, said:
“There is invariably a sense of hope and optimism when a new President takes office in the US, at least amongst his supporters. When Biden replaced Trump, those emotions were heightened by the contrast between the two men. Biden began his presidency strongly with Executive Orders to advance the cause of resisting climate change, a successful passing of a huge fiscal stimulus plan and a more coherent and effective strategy to fight Covid-19.
Today, the legislative programme is stalled with the Democrats’ casting-vote majority in the Senate undermined by the caution of two moderates. The ambitious social infrastructure fiscal package has been abandoned and attempts to restrict limitations on voting rights are currently being prevented by filibuster.
President Biden’s authority has been damaged by the political impasse and by the shambolic departure from Afghanistan. The ideological divide between Democrats and Trump supporters remains as wide as ever.
Yet despite this, the US economy is in a much better state that when he took office. Economic growth has been strong, unemployment has tumbled, and the stock market is up by close to 20%. Yes, inflation has risen to a multi-decade high of 7%, but when you add the spike in employment to the growth in wages, household incomes have risen even further. Wage growth is especially strong amongst the lower paid and the fall in unemployment has been especially marked for minorities. The authorities do seem to be winning the war with Covid, with the limited restrictions still in place likely to be removed soon.
Not all of this reflects the actions of the President of course, but the US has recovered stronger than other developed nations and in 2021 at least, the US stock market has outperformed. Although the deaths from Covid in the US have been higher on a comparable basis than elsewhere, the US health care system has avoided the pressures seen in some other countries.
The second year of Biden’s term could well prove challenging. The stock market is down so far this year, the Federal Reserve is set to raise interest rates and put its bond-buying programme into reverse. Unemployment cannot fall much further. At the end of the year, the mid-term elections could see the Democrats lose their majority in the House as well as the Senate. Gridlock looms.
The US economy has once again demonstrated its strength. US tech companies have played a vital role in the pandemic and have reaped the benefits in terms of their share prices. Yet the US political system remains acutely polarised and the Republicans will be focussed on getting their man or woman into the White House in 2025. The Democrats will be hoping that they can avoid recession or some unforeseen political reverse in the next two years.”