Is New Stimulus Enough To Keep Rally Going?

The government is ready for another stimulus even as the $900 billion stimulus that just passed hasn’t even fully gone out yet. That was more of a stop-gap. The 11 weeks of unemployment benefits were never enough since the pandemic will probably be a factor through mid-March. While hospitalizations have peaked, 128,947 people is nothing to ignore. 11.9 million vaccine doses have been given out in America which is 3.6% of the population.

We’ve been following Israel closely because it is the furthest along vaccine distribution. Even still, it has record high cases and deaths. Out of 200,000 Israelis over 60 who got the vaccine, the infection rate was the same as those who didn’t for 14 days. After the 2 week marker, there was a 33% decline in the infection rate due to the vaccine. We should see the vaccines impact the overall data in the country starting in February or March.

Biden proposed a $1.9 trillion stimulus which includes direct payments of $1,400 and increasing weekly unemployment insurance to $400 per week. The chart above shows the 10 day average of unemployment benefits. Through early January it hasn’t increased despite the recent stimulus passing $300 weekly benefits. These new $400 benefits will extend through September. Included in the stimulus is a $15 minimum wage which would be a massive increase for the 21 states that rely on the current federal one of $7.25. That minimum wage is so low it’s almost like not having one.

It’s generally not the best idea to raise the minimum wage when the labor market is weak because raising the wage hurts job growth. We’re guessing this hike will come in stages as they usually do. Politicians love to campaign on raising the minimum wage, but then do it in stages over 5 years or so. If raising the wage is so imperative, why doesn’t it get done right away? That’s because most politicians know there are consequences that they don’t mention. The stimulus also includes extending the eviction moratoriums until the end of September. That will limit rent inflation.

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