A successful vaccine doesn't negate the need for more economic stimulus, Barclays says

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A successful vaccine doesn't negate the need for more economic stimulus, Barclays says
The Senate side of the Capitol is seen in Washington, early Monday, Nov. 9, 2020.AP Photo/J. Scott Applewhite
  • The stock market's blissful reaction to Pfizer's vaccine announcement may have some wondering if the US will still pass a sizable fiscal stimulus package.
  • A team of Barclays economists wrote in a Monday report that given the timeline of inoculation and the current US employment outlook, they still expect a fiscal package of a least $500 billion to pass in the first quarter of 2021.
  • "In our view, federal government transfers to replace lost wage and salary income and revenues at the state and local level, among other items, would be useful in preventing an undesirable decline in demand and provide a bridge for the US economy to the time when a vaccine becomes widely available," they said.
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Pfizer's announcement of a 90% effective vaccine against the coronavirus and the subsequent stock market glee that may lead some to question whether the US will still pass a sizable fiscal stimulus package.

A team of Barclays economists wrote in a Monday report that given the timeline of inoculation and the current US employment outlook, they still expect a fiscal package of a least $500 billion to pass in the first quarter of 2021.

I's unlikely that the US will reach "anything resembling population immunity" in less than a year from now, the analysts said. Even if a vaccine is approved by the end of the year, it will still be until at least the third quarter of 2021 when a "sizeable" amount of the US, EU, and UK populations are vaccinated.

The economists also pointed out that as of October, 11.1 million US workers remain unemployed. State budgets are under pressure, as seen by the 130,000 decline in state and local government employment in October, they added. The rising numbers of new COVID-19 cases are likely to slow economic activity into the winter months.

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"In our view, federal government transfers to replace lost wage and salary income and revenues at the state and local level, among other items, would be useful in preventing an undesirable decline in demand and provide a bridge for the US economy to the time when a vaccine becomes widely available," said Barclays in a report on Monday.

Read more:Buy these 21 overlooked stocks set for huge gains as the world's vaccine hopes just became a reality, Jefferies says

Barclays also noted that the vaccine won't stop Congress from extending components of current legislation that are set to expire by the end of 2020, like the $300 a week in federal pandemic employment benefits. On Monday, Senate Majority Leader Mitch McConnell reiterated the need for "targeted" relief by the end of the year.

The economists said the fiscal package could be larger and passed earlier than their forecast if Senate Republicans decide to negotiate further.

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"Prior to the election, Senate Republicans indicated they could support spending up to, but not exceeding $1 trillion. In addition, Senate Majority Leader Mitch McConnell has indicated he would be open to advancing a spending package before year-end, though we do not know under what terms and much still needs to be decided," said Barclays.

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