Janet Yellen, who will take over as the new US Treasury Secretary, said in a speech yesterday that she directly supports large-scale fiscal stimulus measures. She pointed out that the US economy will face a recession if the Congress does not approve additional assistance. Yellen advocates a further increase in stimulus and major changes in fiscal policy, which caused a number of grievances among Republicans.
In another note, today, Joe Biden will be inaugurated as the new US president. Last week, he presented a new program of assistance to the economy, the amount of which is $ 1.9 trillion. It includes $ 1,400 payments to most households (plus the $ 600 that Trump promoted), as well as the allocation of additional funds for social programs and the fight against the coronavirus pandemic. The program also provides assistance to businesses and large corporations.
Going back to Yellen, she touched on the issue with China. In particular, of how Beijing is utilizing unfair trade dynamics. Yellen is also not the only one from the newly-formed administration who advocated maintaining active pressure on China. For example, Antony Blinken, who will take over as US Secretary of State, said he agreed with the Trump administration that China's actions threaten the stability of the US economy. In a statement to the Senate Foreign Relations Committee, Blinken proposed to ban imports of goods produced in Xinjiang and to ban exports to companies that engage in rights violations.
Avril Haines, Biden's candidate for the post of Director of National Intelligence also issued a similar statement. Haynes said she wants to use intelligence to better support efforts to counter China's unfair, illegal and aggressive human rights practices.
Yellen also noted that she is ready to use a full set of tools to combat price dumping imposed by China, as well as the provision of illegal subsidies to corporations.
With regards to exchange rates, Yellen abandoned the use of policies to gain a competitive advantage. This is in contrast to the actions of former Treasury Secretary, Steven Mnuchin, who has repeatedly expressed his preference for a weaker dollar. Yellen said her goal is to resist attempts by other countries to gain a trade advantage, thus hinting at China's attempts to do so with the weak yuan.
At the end of her speech, Yellen mentioned the increasing national debt and US budget deficit. But at the moment, the main goal is to help people amid the coronavirus pandemic and support investments in infrastructure and technology.
An important moment for the US economy is the payment of interest on government bonds, which are now below the level observed in 2008 during the financial crisis. According to Yellen, this strengthens the argument for using additional funding to help the economy hit by the pandemic.
As for the EU, the IMF said it forecasts the German economy to grow by 3.5% in 2021, after contracting by 5.4% in 2020. Economic recovery will be fragile and uneven, depending on the effectiveness of the fight against the coronavirus. The real economic recovery will begin only after the widespread distribution of the vaccine, which is projected to happen only by fall. In this regard, production will return to pre-crisis levels only at the beginning of 2022, as Germany's export dependence makes it more vulnerable due to lower external demand. Meanwhile, the unemployment rate is projected to rise from 4.2% to 4.3%, while the budget deficit is expected to decrease to 3.4% of GDP.
Aside from that, the IMF also released an economic forecast for France, that is, a jump of about 5.5% this year. However, medium-term production will remain below pre-crisis levels until early next year. As for the unemployment rate, it is expected to rise to 10.4% this year, while the budget deficit will decrease to 7.7%. National debt, on the other hand, will grow to 117.6% of GDP.
With regards to EUR/USD, further direction will depend on trading activity at 1.2110. In particular, if the bulls manage to hold the quote above this level, EUR/USD may rise to 1.2180 and 1.2225. But if the bears successfully drag the euro down to 1.2055, the quote will drop to 1.1990 and 1.1920.
An interesting report was also published by EU banks yesterday. The ECB said credit standards for enterprises were tightened in the fourth quarter, and the conditions for household loans were changed significantly. The changes were due to a deterioration in the overall economic outlook, as well as an increase in the credit risk of borrowers. The situation is expected to escalate in the first quarter of this year.
The report also said demand for loans in the fourth quarter continued to decline, while the demand for home loans increased. As for consumer lending, there is a noticeable decrease in demand. Despite this, banks note that government guarantees are helping to maintain more favorable lending conditions this year.