Might an unthinkable level of COVID-19 infections catalyze further fiscal and monetary stimulus?: The MUFG Global Markets Podcast

John Herrmann reviews three risk factors of interest: (1) a rapid deterioration in statistical momentum over the 4th Quarter in consumer and business spending and in total business inventories, (2) strong mobility indicators and surging COVID-19 new infection cases and (3) a fundamentally divided Senate chamber that may be united – if only for a brief moment in the 1st Quarter – to deliver a relatively forceful stimulus package (of near $1.500 trillion, or greater) to thwart risks of: surging Wave 2 COVID-19 new cases (towards 250,000 to 300,000 per day), more stringent lock-down measures, and another economic contraction. 

In this episode, MUFG’s U.S. Rates Strategist, John Herrmann, finds that the complexion of risk factors remains supportive of his models forecast for real GDP growth over the 4th Quarter, of near +6.00% q/q annualized, or near -2.10% on a 4q/4q year-over-year rate. However, these very same factors point to a potentially worrisome outcome for 1st Quarter’s real GDP growth rate, of weaker than +1.00% q/q annualized – but with some risk of an economic contraction. Again, it is ironic that the U.S. Congress can be united only by risk of a near unthinkable rate of community spread of COVID-19 (and its implications for risk of an economic contraction)! As this drama plays out, waiting in the wings, the members of the FOMC begin their review of the policy toolkit to decide how best to support, prolong, and enhance U.S. economic recovery.

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