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Chaoping Zhu
Chaoping Zhu

What the US’ latest stimulus bill means for investors in the new year

  • The short-term nature of the stimulus package underscores the need for the new Congress to provide further relief
  • The long-term costs are also worth watching, as we hopefully approach the end of the pandemic and look towards a broad economic rally

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People walk through the Rockefeller Centre in a subdued New York City on December 20. The resurgent pandemic has caused an economic slowdown in the US. Photo: AFP
Chaoping Zhu

After a long wait, US President Donald Trump finally signed the second pandemic relief and government funding bill into law on December 27.

The focus of this massive US$2.3 trillion bill is a US$900 billion stimulus package, which includes a US$600 direct payment to each eligible adult under certain income levels and children under certain ages. It will also bring various unemployment benefits to workers and financial support to enterprises.

In addition, language has been added to the bill forcing the Federal Reserve to close four lending facilities and return unused funds from these programmes to the Treasury, and prohibiting the Fed from restarting these programmes without new legislation from Congress.

Had Trump not signed the bill, not only would unemployment benefits and stimulus cheques have been in limbo, funding for vaccine distribution would also have been further delayed and it could have prompted a US government shutdown.

For the US economy, this package provides some overdue relief. The resurgent pandemic has caused an economic slowdown, which is becoming evident from short-term indicators such as unemployment claims, airline travel and restaurant reservations. While fourth-quarter real GDP growth could still be as strong as 5 per cent annualised, growth in the first quarter of 2021 could slip to 1 per cent or below.

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As a result, the bill is critical to helping some workers and businesses get through the hardship before the mass distribution of Covid-19 vaccines and a full economic recovery. However, the short-term nature of this stimulus package underscores the need for the new Congress to provide further relief after it begins its duties later this month.

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