How low interest rates may shape the start of a Biden presidency
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The incoming Biden administration will be stepping into a low interest rate environment.
That’s a tail wind in some ways. “You make it cheaper for businesses and households to borrow so they can either invest or hire or spend,” explained Seth Carpenter, chief U.S. economist with UBS.
Now of course, the reason rates are low is entirely bad. The Federal Reserve has had to lower them to help businesses stay in business and consumers keep spending during the COVID-19 pandemic.
Even though lots of firms would like to take advantage of low rates, many are afraid because of the staggering uncertainty that has become the calling card of 2020.
“On the one hand, you’ve got very low interest rates, so the cost of investment, at least debt financed investment, is very low,” said Lee Branstetter, professor of economics and public policy at Carnegie Mellon University and a former member of President Obama’s Council of Economic Advisers. “But on the other hand you don’t quite know when the world is going to go back to normal, and you don’t know what kind of normal the world’s going to go back to.”
So the economy is in this kind of sad place. The Fed can’t do a whole lot more than it’s already done. The only thing really left is for Congress and a president to pass more stimulus.
This would mean more debt, and some in Congress profess concern over such a path.
“The deficit to GDP ratio we’re told is higher today than it’s been since World War II,” said Peter Ireland, professor of economics at Boston College. Should interest rates rise in the future, it will increase the debt burden further.
But if the country needs to go into more debt, now would be a good time to do it — precisely because rates are so low, said UBS’ Carpenter.
“At least for as long as rates stay as low as they are, it makes it easier, more affordable, to carry around a larger debt burden,” he said.
While the Biden administration may wish to provide more stimulus, if it faces a split Congress the chances of that will fall. Carpenter said the last time this happened, after the Great Recession, a bickering Congress that couldn’t pass enough stimulus actually slowed down the recovery.
COVID-19 Economy FAQs
Millions of Americans are unemployed, but businesses say they are having trouble hiring. Why?
This economic crisis is unusual compared to traditional recessions, according to Daniel Zhao, senior economist with Glassdoor. “Many workers are still sitting out of the labor force because of health concerns or child care needs, and that makes it tough to find workers regardless of what you’re doing with wages or benefits,” Zhao said. “An extra dollar an hour isn’t going to make a cashier with preexisting conditions feel that it’s safe to return to work.” This can be seen in the restaurant industry: Some workers have quit or are reluctant to apply because of COVID-19 concerns, low pay, meager benefits and the stress that comes with a fast-paced, demanding job. Restaurants have been willing to offer signing bonuses and temporary wage increases. One McDonald’s is even paying people $50 just to interview.
Could waiving patents increase the global supply of COVID-19 vaccines?
India and South Africa have introduced a proposal to temporarily suspend patents on COVID-19 vaccines. Backers of the plan say it would increase the supply of vaccines around the world by allowing more countries to produce them. Skeptics say it’s not that simple. There’s now enough supply in the U.S that any adult who wants a shot should be able to get one soon. That reality is years away for most other countries. More than 100 countries have backed the proposal to temporarily waive COVID-19 vaccine patents. The U.S isn’t one of them, but the White House has said it’s considering the idea.
Can businesses deny you entry if you don’t have a vaccine passport?
As more Americans get vaccinated against COVID-19 and the economy begins reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.
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