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Why the Biden Economy Could Be the Same Long Slog as the Obama Economy – The New York Times

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President Obama meeting with congressional leaders and Vice President Joe Biden in the White House in January 2015.
Credit…Stephen Crowley/The New York Times

The way things are shaping up, the Biden economy appears likely to show uncanny similarities to the 2011-to-2016 Obama economy.

Joe Biden will be inaugurated in January amid an economy that is likely to be slowly recovering from collapse. The Senate will probably be in the hands of Republicans — an opposition party perhaps willing to do enough to try to prevent steep damage to the economy and markets, but unwilling to embrace the kind of multi-trillion dollar spending agenda that could generate a Biden boom. This combination would mean that the Federal Reserve would be left playing the dominant role in trying to propel an economic recovery, with the downsides that would entail.

Much about that forecast is uncertain. There is still a chance, if both runoff elections in Georgia go their way, that Democrats could win 50 seats in the Senate, with Kamala Harris as vice president to tip the balance. Or, this version of a Republican Senate may prove more receptive than the Obama-era one to working with Mr. Biden on his economic agenda. (The Senate majority leader, Mitch McConnell, indicated a desire on Wednesday to pass new a stimulus bill before the end of the year, though on Friday he said that good jobs numbers meant that stimulus should be relatively small.) And it is possible that when the coronavirus crisis abates, the economy will snap back to health on its own, particularly if the Biden administration handles public health policy effectively.

But the reaction to the election in financial markets in recent days suggests that something like the Obama recovery is more likely: in short, a long slog back to health.

Treasury bond yields fell sharply Wednesday, suggesting investors expect less fiscal stimulus, slower growth and easier monetary policy from the Fed than had been envisioned pre-election. And the stock market soared Wednesday and Thursday, as investors priced in both easier money from the Fed and a Biden administration that will be constrained in its ability to raise taxes and expand regulation on businesses.

By contrast, in the run-up to the election, markets had become more positioned for a world in which a Biden administration came to office with a Democratic Senate, and could more fully embrace the kind of transformative agenda many on the left would prefer.

“The whole blue wave idea that would have come with not only very generous stimulus in the near term but structural reforms and big infrastructure investment, that seems to be off the table,” said Julia Coronado, president of MacroPolicy Perspectives.

On the campaign trail, Mr. Biden spoke of transformative efforts to fund clean energy and other infrastructure investment, which analysts expected would imply the spending of trillions of dollars and the creation of millions of jobs.

The experience of the final six years of the Obama presidency looms large. In that span, Republicans controlled at least one chamber of Congress and blocked any large-scale fiscal policy — and insisted on spending cuts in response to high deficits. Legislative deal-making took place at the margins, if at all. It was the Federal Reserve that played the dominant role in trying to propel an economic recovery, through quantitative easing and other unconventional policies.

Last time, the recovery generated by that combination was a long march back toward prosperity.

In the last recession, Congress passed a large fiscal stimulus bill in early 2009 that helped start an expansion in mid-2009. When Republicans took control of the House in early 2011, they insisted upon a turn toward deficit reduction, and the expansion continued slowly in the years that followed, with help from the Fed’s actions.

From the time that expansion began in mid-2009, it took more than six years for the unemployment rate to fall to 5 percent, its level when the Great Recession began. The Fed’s programs were effective at driving up financial markets, but with less clear-cut benefits for ordinary Americans.

The Fed chair, Jerome Powell, has been vocal about the limits of the Fed’s tools, stressing that the central bank can lend money but cannot spend it. He has called on Congress to use its power of the purse to inject money into the economy directly.

“The upshot of all of this is that the configuration of government means the Fed is going to be expected and required to be even more stimulative than they might have been otherwise,” said Nathan Sheets, chief economist at PGIM Fixed Income and a former Fed and Treasury Department official. “The fiscal impulse is likely to be diminished relative to a blue wave scenario and even relative to a scenario where Trump won and Democrats won the Senate.”

A Biden win should ensure continuity at the Fed, Mr. Sheets said, either because he reappoints Mr. Powell to a second four-year term when his current one expires in early 2022, or because he appoints someone with broadly similar views on monetary policy and credibility on Wall Street, like the Fed governor Lael Brainard or the former chair Janet Yellen.

There are ways the Biden economy might escape the slow-growth economic outlook, if the Senate goes along with enough coronavirus rescue funds to prevent widespread business failures and sharp pullbacks by state and local governments. Strategists at Jefferies, for example, project that a “skinny” stimulus of $500 billion to $1 trillion could be in play.

Then, a successful public health policy enables economic activity to quickly return to pre-pandemic levels.

“If we got a trillion dollars of stimulus, you could have a decent constellation of policies if an administration comes in and manages the virus well,” Ms. Coronado said. “We need to manage the virus efficiently, and if we got a good federal response by the end of the first quarter combined with some stimulus, you could see decent momentum.”

The global financial crisis a dozen years ago was caused by fundamental imbalances in the economy that took time to repair, whereas the coronavirus recession was caused by a surprise shock — which raises at least the possibility of a much quicker return to normal.

So the biggest question may turn out to be this one: Has the pandemic fundamentally broken anything about the economy? If not, a speedy recovery may be possible even without a politically aligned Congress. If not, it might feel like the early 2010s all over again.

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U.S. Set to Push Global Economy Over the Recovery Line – The Wall Street Journal

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Consumer spending is helping rejuvenate the U.S. economy.

Consumer spending is helping rejuvenate the U.S. economy.

Photo: Marcio Jose Sanchez/Associated Press

The U.S. economy likely returned to its late-2019 size during the three months through June, helping to lift global output above its pre-pandemic level for the first time.

Economists surveyed by The Wall Street Journal estimate that figures to be released Thursday will show that the U.S. gross domestic product rose at an 8.5% seasonally adjusted annual rate in the second quarter. That likely left U.S. GDP—the value of all goods and services produced across the economy, adjusted for seasonality and inflation—above the $19.2 trillion level reached in the final quarter of 2019, the last before the spread of Covid-19 pushed large parts of the global economy to shut down and contract, they say.

The combined economic output of the Group of 20 leading economies exceeded its pre-pandemic level in the first quarter,  according to estimates by the Organization for Economic Cooperation and Development. With the U.S. and a number of other large economies crossing that threshold in the second quarter, it is likely that global output is now higher than the level recorded in the final quarter before the coronavirus struck, the group says.

Europe’s economy, however, likely remains smaller than before the pandemic, according to the European Commission, while the spread of the new Delta variant of the coronavirus across Asia threatens to slow its recovery in the second half of the year.

The International Monetary Fund Tuesday will release new forecasts for the global economy. Kristalina Georgieva, the fund’s managing director, on Wednesday told a webinar that while its projection for world economic growth in 2021 will stay at the 6% forecast in April, the outlook for rich countries with speedy vaccination programs has improved, while the outlook for poor countries has weakened.

“Despite the fact that of course the new Delta variant is significant, what we are projecting is a remarkable recovery in 2021,” she said. “But between April and July the composition of this 6% has changed.”

In the U.S., widespread business reopenings, rising vaccination rates and a big infusion of government pandemic aid helped fuel the spring burst of economic growth, and will likely support a solid expansion through this year and into next year, according to economists surveyed by the Journal.

U.S. GDP will likely even be higher by the end of 2022 than was forecast before the pandemic, says the OECD. That robust recovery, however, is unlikely to be shared by much of Europe, or many other parts of the world, it says.

“That’s the return for the big fiscal stimulus, and also the fact that the U.S. never really locked down as fully as Europe did,” said Christian Keller, chief economist at Barclays.

According to the European Commission, the combined economic output of the European Union’s 27 members will return to its precrisis level in the final quarter of this year. But individual countries will get there sooner than others, depending on how much their economies count on tourism and related services, which were more hobbled by the pandemic’s effects than manufacturing and other heavy industries.

The commission said that Poland might already have recovered in the second quarter and is likely to be followed in the third quarter by Germany. What the two have in common is a relatively large factory sector that has benefited from the global surge in demand for goods during the pandemic, when households sharply curtailed their spending on in-person services.

“There is a very close correlation between the share of industry in GDP and performance over the last year,” said

Beata Javorcik,
chief economist at the European Bank for Reconstruction and Development.

By contrast, the Commission expects Spain and Italy to recover only in the third quarter of next year. Both countries have large tourism sectors, and broader hospitality industries.

“The recovery is characterized by great divergences across and within countries and remains exposed to downside risks, in particular the spread of new variants of the COVID-19 virus and different paces of vaccination,” said finance chiefs from the Group of 20 largest economies earlier this month.

India offers the clearest recent example of the economic cost of a fresh surge in infections through a largely unvaccinated population. Of all the G-20’s members, India suffered the largest economic contraction during the second quarter of 2020, but bounced back strongly to end the first three months of this year with output 2.7% higher than its pre-pandemic level.

But the pandemic and government restrictions returned with a vengeance in the second quarter of this year, driven by the fast-spreading Delta variant, with the result that surveys of purchasing managers point to declines in services activity throughout the three-month period, and even in manufacturing toward its end.

Across Asia more broadly, new restrictions are being imposed as infections rise. Earlier this month, Indonesia’s government announced new curbs in hard-hit areas of Java and Bali. Around the same time in Vietnam, the government imposed new curbs on movement in Hanoi, the capital, and other cities. Japan’s delayed Olympic Games started Friday without spectators after the government declared a state of emergency that will last through the event.

“The stringency of restrictions in Asia is even tougher than it was a year ago,”  said

Alicia Garcia Herrero,
chief Asian economist at French financial services firm
Natixis.
“Asia may fall behind in returning to normality.”

Write to Paul Hannon at paul.hannon@wsj.com

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Tunisians protest as COVID surges, economy suffers | Coronavirus pandemic News – Al Jazeera English

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Police used pepper spray on protesters in Tunis who threw stones and demanded Prime Minister Hichem Mechichi quit, parliament be dissolved.

Police and protesters have clashed in several Tunisian cities as demonstrators demanding the government step down after a spike in COVID-19 cases that has aggravated economic troubles attacked offices of Ennahda, the biggest party in parliament.

In Tunis on Sunday, police used pepper spray against protesters who threw stones and shouted slogans demanding that Prime Minister Hichem Mechichi quit and parliament be dissolved.

Witnesses said protesters stormed or tried to storm Ennahda offices in Monastir, Sfax, El Kef and Sousse, while in Touzeur they set fire to the party’s local headquarters.

The protests raise pressure on a fragile government that is enmeshed in a political struggle with President Kais Saied, who is trying to avert a looming fiscal crisis amid a weeks-long spike in COVID-19 cases and increased death rates.

The pandemic has hit Tunisia as it struggles to lift an economy that has suffered since its 2011 revolution, undermining public support for democracy as unemployment surged and state services declined.

Tunisian anti-government protesters hurl rocks amid clashes with security forces during a rally in front of Parliament in the capital Tunis [Fethi Belaid/AFP]

“Our patience has run out … there are no solutions for the unemployed,” Nourredine Selmi, 28, a jobless protester, told Reuters news agency. “They cannot control the epidemic … They can’t give us vaccines.”

Last week, Mechichi sacked the health minister after chaotic scenes at walk-in vaccination centres during the Muslim Eid al-Adha holiday, where large crowds queued for inadequate supplies of vaccine.

The ministry said earlier this month that Tunisia’s health system had “collapsed” under the weight of the pandemic, which has caused more than 17,000 deaths in a population of about 12 million.

After a year of wrangling with Mechichi and the leader of Ennahda, Rached Ghannouchi, who is also parliament speaker, President Saied declared the army would take over the pandemic response.

Some analysts saw the move by Saied as an attempt to expand his powers beyond the foreign and military role assigned to the president in the 2014 constitution.

Government paralysis could derail efforts to negotiate an International Monetary Fund loan seen as crucial to stabilising state finances but which could also involve spending cuts that would aggravate economic pain for ordinary people.

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Biden Faces Fresh Challenges on Covid-19, Economy – The Wall Street Journal

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President Biden is trying to steer the infrastructure bill to the finish line.

President Biden is trying to steer the infrastructure bill to the finish line.

Photo: saul loeb/Agence France-Presse/Getty Images

WASHINGTON—President Biden took office with the goals of overcoming the coronavirus pandemic, spurring economic growth and winning legislative approval for trillions in new spending.

Six months in, all three of his major objectives are being tested.

Covid-19 cases and hospitalizations are on the rise, spurred by the Delta variant and vaccine resistance from a slice of the population. Concerns over the spread of the pandemic have caused some turbulence in the financial markets and consumer prices are ticking up, prompting warnings about long-term inflation. A bipartisan infrastructure deal and a broader Democratic spending bill remain deep in negotiations and a long way from Mr. Biden’s desk.

During a cabinet meeting last week, the president in his public remarks highlighted his work so far but acknowledged some of the current pressure points. “I know it seems like a constant uphill climb…we’re making progress, but we’ve got a way to go yet,” Mr. Biden said of the vaccination effort.

He emphasized the need for “constant vigilance” against the virus, asserted that his economic program would “generate significant continued economic growth” and defended his infrastructure and antipoverty legislative plans as popular.

Since Mr. Biden took office, more than three million jobs have been created and nearly 60% of American adults are now fully vaccinated. When he reached an agreement with Republicans in June on a bipartisan framework for a roughly $1 trillion infrastructure proposal, he said it showed that bipartisanship was possible.

Senate Minority Leader Mitch McConnell has criticized the spending legislation.

Senate Minority Leader Mitch McConnell has criticized the spending legislation.

Photo: Chip Somodevilla/Getty Images

Now, Mr. Biden appears to be moving into a more challenging phase of his presidency. A Gallup poll released Friday put Mr. Biden’s job approval at 50%, the lowest mark since he took office. He is trying to convince skeptics—many of whom don’t support him politically—to get vaccines. He is seeking to ease public worries about price increases. And after investing much time in a bipartisan framework on infrastructure reached with Republican and Democratic senators, the White House now must help steer the bill to the finish line.

A new poll from ABC News/Ipsos released Sunday found that 45% of Americans were optimistic about the direction of the country—a drop from 64% expressing optimism in the spring.

Republicans say Mr. Biden’s policies will damage the economy. House Minority Leader Kevin McCarthy (R., Calif.) tweeted recently that “the Democrats’ inflation is destroying Americans’ hope for financial security.” And Senate Minority Leader Mitch McConnell (R., Ky.) has taken to calling the spending plans a “reckless tax and spending spree.”

Mr. Biden’s allies note that part of governing is dealing with the unexpected, and they give him credit for managing the pandemic and pushing his agenda in a divided Congress.

“All presidents have to deal with these external factors that just careen into their presidency,” said Sen. Ed Markey (D., Mass.). “But on this big agenda which he has for infrastructure and for family, he’s right on pace.”

The White House has been on the defensive as Covid-19 cases rise again. A vaccination site in New York City on Thursday.

The White House has been on the defensive as Covid-19 cases rise again. A vaccination site in New York City on Thursday.

Photo: Mary Altaffer/Associated Press

The White House continues to express optimism. White House senior adviser Anita Dunn briefed Democratic lawmakers Thursday about the president’s economic plans, with a slideshow that emphasized the administration’s arguments that the agenda will boost jobs and help working families, including polling data showing the popularity of the initiatives.

But the White House acknowledges the depth of Mr. Biden’s challenges. “He has a lot on his plate, and he is fully focused on all of it. And so we just keep pressing on,” senior adviser Mike Donilon said during a briefing call with reporters.

On vaccinations, the White House has been on the defensive in recent days as cases rise again after having fallen earlier in the year, and amid news of breakthrough infections at the White House and the Capitol. The country still hasn’t quite reached Mr. Biden’s goal, initially set for July 4, of reaching 70% of Americans with at least one dose of the Covid-19 vaccine. So far, over 68% of adults aged 18 and older have received one shot and nearly 60% have been fully vaccinated.

Mr. Biden has been asked repeatedly whether mask guidelines should be reconsidered. Some local governments have reimposed masking rules as the spread of the highly contagious Delta variant drives up cases in every state in the country.

Budget reconciliation may offer Democrats a way to sidestep some partisan gridlock and advance President Biden’s policy objectives. WSJ explains how the process works and why divisions in the party could scuttle the process. Photo Illustration: Carlos Waters / WSJ

The Wall Street Journal Interactive Edition

Before a meeting at the White House on Thursday, he said the administration would follow the scientific advice. He repeated his argument that the current situation is a “pandemic among the non-vaccinated,” adding that the vaccinated were protected against infection in most cases, and from serious illness if they do contract the virus.

Mr. Biden has also tussled with
Facebook
over the social media company’s role in policing misinformation about Covid-19 and vaccines.

William Galston, a former aide to President Bill Clinton, said the president faced risks if he wasn’t able to meet his public goals.

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“Expectations have been raised,” he said. “If those expectations are dashed, my fear is there could be a reaction.”

White House officials have long said the pandemic and economy are intertwined, and success in vaccinations would bolster job growth. The president has delivered remarks at the start of each month to highlight the rebound in hiring—with employers adding an average of about 600,000 jobs a month since the start of his presidency.

But the turbulence and polls showing growing concern over inflation have prompted Mr. Biden to push back against critics who say his spending policies, and pursuit of tax increases, are the wrong economic prescription.

He has acknowledged inflation in the short term but asserted that it won’t be a long-term issue for Americans—a message that could become difficult to maintain if consumers continue to face higher prices in the coming months.

“People are paying more for everything—when they can get it. If there’s one thing Americans don’t like doing, it’s standing in lines and paying more for something,” said

Chris LaCivita,
a Virginia-based Republican strategist. Virginia holds a gubernatorial election in November that could serve as an early test of Mr. Biden’s political strength.

The White House views Mr. Biden’s legislative agenda as the best way to position Democrats in next year’s midterms. Mr. Biden notched an early victory with the passage of a $1.9 trillion Covid-19 relief law during his first 100 days and has used executive action to overturn many actions taken by former President Donald Trump.

Enacting the next major planks of his agenda rests on whether he can secure support for a roughly $1 trillion infrastructure package and a separate $3.5 trillion measure to fund projects to address climate change and provide access to education and affordable child care. Each will test Mr. Biden’s deal-making skills: The first package would need the support of at least 10 Republicans to advance in the Senate, while the second will require unanimous Democratic support to make it through the chamber.

Write to Ken Thomas at ken.thomas@wsj.com and Catherine Lucey at catherine.lucey@wsj.com

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