Fed call for more stimulus 'has a point' given the US has so far committed only 15% of GDP to fiscal relief, one strategist says
- Federal Reserve chairman Jerome Powell "has a point" in pushing for more fiscal support as the US has only provided 15% of GDP towards stimulus, a Wall Street chief strategist said.
- Charles Schwab's Jeffrey Kleintop pointed out that other advanced economies have provided much higher stimulus packages as a percentage of their GDP: Europe is closer to 30%, while Japan is at 40%.
- "I think the amount of stimulus encouraging a further recovery in Europe and Japan maybe favors those markets over the US as we look out over the next few quarters," he told Business Insider.
- The strategist expects more market volatility amid the race for the Senate, rather than the US presidential election itself.
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Federal Reserve chairman Jerome Powell "has a point" in urging Congress to inject more cash into the economy because the US has committed only 15% of its total economic output towards fiscal stimulus, far less than other rich nations, Jeffrey Kleintop, chief global investment strategist at Charles Schwab, said on Thursday.
"Powell is right to call for more fiscal stimulus to aid the US recovery," Kleintop told Business Insider.
The strategist, who is cited as one of "Wall Street's Best and Brightest," pointed out that as a percentage of GDP, the US has provided about 15% in stimulus, Europe is closer to 30%, and Japan is at 40%.
"I think the amount of stimulus encouraging a further recovery in Europe and Japan maybe favors those markets over the US as we look out over the next few quarters," he said. "It seems unlikely that the US — at least ahead of this election— will put any more stimulus to work."
Kleintop said that investors can expect more volatility around the race for the Senate, rather than the US presidential election, since it acts as a "firewall" against any sweeping legislative reforms. If the Senate remains in the hands of the Republicans, then markets may not react very much at all.
Markets will "feel fairly confident that campaign promises are unlikely to translate into legislative action," he said. "I think we'll see fairly early on whether that Senate race is going to be very close, as opposed to the presidential race, or not."
"It looks like there's still likely to be a pretty good lead in terms of number of seats for the GOP, and we may not see as much volatility as some fear even if the presidential election is very close and the outcome isn't known for a while."
On Thursday, Goldman Sachs lowered its fourth-quarter US GDP forecast to 3% from 6% on a quarter-over-quarter basis after assessing the lack of a near-term relief package into their base case.
Goldman now expects any stimulus bill to be passed in early 2021, if at all.