Stimulus Deal Hinges More on Election Than Economics Despite Predictions of Historic GDP Recovery

As the U.S. presidential election draws ever closer and conclusions to negotiations over a new stimulus package remain elusive, what is shaping up to be a historic rate of GDP growth in data to be released Thursday will likely have little impact on a deal.

A number of forecasters think the figures will show the biggest economic rebound since World War II, with growth clocking in at somewhere between 30-35 percent, gaining back much—though not all—of the ground lost due to the pandemic.

Yet, stimulus talks have been at a near-standstill for months due to a partisan disagreement about how big it should be and what provisions it must contain. Despite recent signs of progress, no deal has emerged.

"It really is the political situation that will determine whether and how big the next stimulus bill is," Eric Winograd, senior vice president and senior economist for fixed income at AllianceBernstein, told Newsweek.

"This is a political calculation they're making, not an economic one."

Democrats are pushing for a sprawling $2.2 trillion stimulus package, down from the $3 trillion they initially wanted, to match what they see as the scale of the crisis facing Americans.

But Republicans want less, targeted stimulus—a so-called "skinny bill"—of around $500 billion and accuse Democrats of a partisan spending wishlist. President Donald Trump and the White House are seeking to bridge that gap between the two parties.

In light of yet another fruitless round of negotiations, Trump told reporters on Tuesday that the next coronavirus economic stimulus package should arrive after the November election.

The U.S. Senate was adjourned after Monday's swearing-in of new U.S. Supreme Court Justice Amy Coney Barrett and is not expected to reconvene until after Election Day.

Lawmakers could be asked to return to Washington, D.C. to vote on a new bill if an agreement is reached. Amid the political mire, experts are skeptical about what kind of impact a good GDP reading will have.

"There is growing optimism going into this report, but I think you're going to see it's still going to signal that the recovery is still not quite back to where it was pre-pandemic," Edward Moya, senior market analyst at Oanda, told Newsweek.

"I think what we're going to see is that the outlook has deteriorated severely just in October.

"Any surprises with GDP will have limited impact in calls for stimulus. I think that the path of the any new package is still likely to be determined by the election, so regardless of what happens, there will be a lack of a strong reaction to this release."

Winograd said the GDP rebound so far "is due in part to the stimulus programs that were passed in the spring, which I think were very effective."

He continued: "I still think more stimulus is necessary because GDP isn't fully recovered yet, and because there are still more than 10 million people out of work who were working pre-COVID."

Peter Atwater, adjunct lecturer in the economics department at William & Mary, also believes the likelihood of passing a bill hinges on the politics more than the state of the economic data.

"The one time nature of the [GDP] figure will make it easy for policymakers on both sides to dismiss it," Atwater told Newsweek.

"Sadly, until policymakers believe their own political careers are at risk, little will done to aid those whose lives have been upended by the pandemic."

When it comes to potential market reaction, Moya thinks that investors are still focused on how another wave of COVID-19 infections might disrupt the outlook, as global stocks move lower on news of increased cases today.

"There is a growing expectation that the winter months will cripple the economy and consumer spending, so despite the fact that this GDP reading looks to be positive, the market will be looking ahead to that," Moya said.

Donald Trump
President Donald Trump speaks during a campaign rally at the LaCrosse Fairgrounds Speedway on October 27, 2020 in West Salem, Wisconsin. Trump has pledged to pass a stimulus bill after the election. Scott Olson/Getty Images

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