Goldman Capitulates On "Major" Stimulus, Now Sees Just $700BN Fiscal Aid In Early 2021

Back on September 24, long after we repeatedly said that any hopes for another major stimulus before the election (and certainly after, absent a Democratic sweep) was nothing but a pipe dream, Goldman - which until that point had predicted that Congress would pass a $1.5-$2 trillion fiscal stimulus "shortly" - threw in the towel and said it's "base case" no longer anticipates a stimulus before 2021resulting in a 50% cut to its Q4 GDP forecast, from 6% growth to 3% (as a reminder, on Friday JPM slashed its Q1 2020 GDP estimate to negative 1%, i.e., a double dip recession; we expect Goldman will follow suit).

Well, fast forward two months, when in its latest prediction, the overly optimistic Goldman Sachs has fully capitulated to the political reality, and in a note published on Saturday, its chief political economist Alec Phillips writes that with Congress having recessed for Thanksgiving without progress on fiscal relief measures, "the odds that Congress will pass a major fiscal package before year end" have been further reduced. Instead, Goldman now believes that "a much smaller package of temporary extensions looks more likely" although even that may be overly optimistic in light of the unprecedented polarization that is emerging in Congress, a "return" to fiscal conservatism among republicans (this usually happens any time a Democratic president is in power) and hopes that a Covid vaccine may be imminent.

Additionally, according to Goldman, "the longer Congress waits to pass further fiscal measures, the smaller the bill is likely to get" because while increasing virus spread poses near-term risks, by Q1 2021 the outlook for widespread vaccine distribution will restrain the amount of fiscal support Congress will want to provide.

While we find it amusing that we predicted more than three months ago what the top political strategist at Goldman Sachs only now concedes, here are some excerpts from Phillips' "eureka" moment, why he no longer expects any sizable stimulus:

Additional fiscal support still looks likely but Congress has made virtually no progress since the election. With Congress now on Thanksgiving recess this further reduces the odds that Congress will pass major COVID relief legislation in December. Instead, it looks more likely that Congress will add provisions to the spending bill that Congress is likely to pass to fund the government past Dec. 11, when the current spending authority expires (there is a chance a one-week temporary extension could push the deadline to Dec. 18). This would likely include at least an extension of expanded unemployment benefits, which expire Dec. 26. We estimate that the expansion of eligibility and extended duration of benefits would affect 11-12 million individuals collecting benefits and add slightly more than $13bn/month to benefit spending compared with letting those provisions expire.

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