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How low interest rates may shape the start of a Biden presidency - Marketplace

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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.

Pfizer said early data show its coronavirus vaccine is effective. So what’s next?

In the last few months, Pfizer and its partner BioNTech have shared other details of the process including trial blueprints, the breakdown of the subjects and ethnicities and whether they’re taking money from the government. They’re being especially transparent in order to try to temper public skepticism about this vaccine process. The next big test, said Jennifer Miller at the Yale School of Medicine, comes when drug companies release their data, “so that other scientists who the public trust can go in, replicate findings, and communicate them to the public. And hopefully build appropriate trust in a vaccine.”

How is President-elect Joe Biden planning to address the COVID-19 pandemic and the economic turmoil it’s created?

On Nov. 9, President-Elect Joe Biden announced three co-chairs of his new COVID-19 task force. But what kind of effect might this task force have during this transition time, before Biden takes office? “The transition team can do a lot to amplify and reinforce the messages of scientists and public health experts,” said Dr. Kelly Moore, associate director for the Immunization Action Coalition. Moore said Biden’s COVID task force can also “start talking to state leaders and other experts about exactly what they need to equip them to roll out the vaccines effectively.”

What does slower retail sales growth in October mean for the economy?

It is a truism that we repeat time and again at Marketplace: As goes the U.S. consumer, so goes the U.S. economy. And recently, we’ve been seeing plenty of signs of weakness in the consumer economy. Retail sales were up three-tenths of a percent in October, but the gain was weaker than expected and much weaker than September’s. John Leer, an economist at Morning Consult, said a lack of new fiscal stimulus from Congress is dampening consumers’ appetite to spend. So is the pandemic.

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