Markets would welcome U.S. stimulus – but is it hiding the real issue?

Stock markets are cautiously upbeat that a stimulus package can be agreed in the U.S. before the November 3 presidential election.

Should this be the case however, it will probably just act as a temporary sticking-plaster to mask the real long-term issue of unemployment.

House Speaker Nancy Pelosi and Secretary Steven Mnuchin were in talks again earlier this week as both sides try to strike a deal over another significant fiscal stimulus package before next month’s election.

Republican senators criticised a $1.8 trillion offer made by the Trump administration earlier in October as too big, which Ms Pelosi dismissed as “insufficient”.

Of course, seeing an end to the deadlock that would allow more stimulus would bring a much-needed lifeline to millions of Americans.

In general, U.S. and global markets are cautiously optimistic that both sides will reach a deal.

Indeed, there’s a sentiment that something will have to materialise, which is fuelling markets.

Nevertheless, the window of opportunity will soon be closing, and as yet no deal is set in stone.

Should the talks collapse, the markets will undoubtedly be disappointed and there will likely be a short-lived sell-off.

Even if Pelosi and Mnuchin get another massive stimulus package agreed, and U.S. and global markets rise, this will likely only act as a temporary sticking plaster.

Currently, a market rally is going to be hard to prolong due to the mammoth uncertainty created by factors such as the November presidential election and possible constitutional crisis, coupled with heightening Covid-19 cases in the U.S. and other major economies.

Ending the political stalemate would help to boost the economy and deliver much-needed funds to the people of America. That said, mass unemployment stemming from the coronavirus pandemic is still a huge factor, which will inevitably impact demand, growth and investment.

As such, a fast rebound for the U.S. economy is unlikely as unemployment claims are still on the up, and the V-shaped recovery being talking about will be impossible with millions of people facing long-term unemployment.

Although it’s a positive sign that unemployment in the U.S. has fallen from 15% to 11% in recent weeks, the rate is still the same as the 2008 financial crash.

Moreover, a second wave of soaring unemployment could be on the cards as support measures begin to taper off and savings and resources among households and businesses are expended.

What’s needed is a long-term strategy, a multi-year vision for growth and investment. This is absolutely essential.

It’s not just about more stimulus, it’s about smarter stimulus.

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