Olivier de Berranger

Once upon a time in America !

November is the month of thanks in America. Every year, the fourth Thursday of the month is the official holiday of Thanksgiving. Additionally, every four years, November includes a Presidential Election that all are thankful has now been decided with the result of a Biden Presidency with a likely divided government as a “Blue Wave” did not occur. With two run-off elections that will happen on January 5 to determine Georgia’s two Senators, the Democrats marginally would control the Senate (if they win both seats, the Senate would be in a 50-50 tie, in which case the Vice-President can break tie votes, effectively giving the Democrats a 51-50 control).

Even under this situation, though, not much can get through the Senate as the rules typically require 60 votes to move bills to a vote (yes, they have votes on whether to have votes). This means that no major changes will occur, such as increasing taxes, or any excessively progressive policies. No major changes means reduced uncertainty. Investors like that.

Investors have also liked the economic team being put together, with former Federal Reserve Chair Janet Yellen being nominated to be Treasury Secretary. This sends several signals. First, as someone who has been confirmed previously by Republican Senators for her role at the Federal Reserve, it will be difficult for them to reverse themselves and vote against her. Second, her nomination shows that the antagonism between the Trump administration and the Federal Reserve will end. She is a firm advocate of central bank policy independence. Third, her experience and reputation will allow her to be an effective policymaker in working with Congress to pass further aggressive stimulus in the face of calls of austerity from Republicans.

Adding other experienced hands like former international economic official Wally Adeyemo (Deputy Treasury Secretary) and BlackRock executive and former Deputy Director of the Office of Management and Budget Brian Deese (Director of the National Economic Council) provides investors with additional comfort on the stability and competency of economic policy. It is worth noting that among the entire team of advisors, many have backgrounds in labor economics and several have worked on climate change policies in the past, indicating that there will be a focus on education, wage growth and on clean energy infrastructure projects.

It also indicates that far more progressive policies, such as Medicare For All, large redistribution programs, major tax policy changes, or any adoption of policy silliness like Modern Monetary Theory will not be a consideration. Sensible, incremental policy changes will be the order of the day.