All Things Economical and Political

All Things Economical & Political

What to Expect Out of Washinigton in 2021 written by Jim Rieniets, INSBANK CEO

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Over the last twelve months our nation has experienced things that will hold their place in history books for a while. As one ponders the impacts of the pandemic and racial equity discourse, the shifting political winds in our nation’s capital will more than likely see executive order, legislative and regulatory actions which will be impactful. What are some of the likely manifestations?

Stimulus and the Pandemic

As unemployment skyrocketed in the early weeks of the pandemic last year, the Cares Act provided a boost to most wage earners, unemployment compensation and small businesses payrolls. This was an unprecedented reaction to a somewhat unprecedented event. That legislation, alongside Federal Reserve Bank intervention into the economy, has manifest in bank deposit growth that is trying to support growth prospects in the economy and providing a liquidity cushion. Round 2 of the Paycheck Protection Program is underway and is supporting impacted small businesses as the second iteration of the program came with an appropriate needs test of reduced revenues. In addition to the broad PPP program there are also industry-specific programs such as the Shuttered Venue Operators Grant and the CERTS Act which are expected to aid sectors hardest hit by the pandemic.

Most recently, the American Rescue Plan Act is funding $1.9 trillion of stimulus in the form of direct payments to individuals, enhancements to unemployment benefits, and a variety of public benefits for to support states’ efforts to combat the pandemic. All combined, this unprecedented level of government spending is expected to thwart an otherwise dangerous economic downturn, but at some point, our nation will have to reckon with the escalating national debt that has exceeded $27 trillion. That number is a daunting figure when one considers the per capita computations.

Interest Rates & the Economy

With the above-referenced stimulus growing the balance sheets of the banking system, and a Federal Reserve mandate to take actions to stimulate the economy, interest rates are not likely to increase off the bottom anytime very soon. Supply and demand alone will keep rates low in the short-term as banks are flush with cash and demand for loans remains tepid. Depending on the efficacy of the vaccines, however, the intermediate term could see unemployment decrease to levels near a normal bandwidth, and growth in the economy reignites after the hangover of the pandemic. Just this week Treasury Secretary Janet Yellin opined positively on prospects for employment in 2022. The market seems to have some optimism as the 10-year Treasury yields have increased over the last few weeks.

Post Pandemic Agenda

The Biden Administration has been clear about its priorities: defeat COVID19; reduce economic inequities, particularly in communities of color; and address concerns regarding the environment. While addressing the pandemic has been somewhat bipartisan, the administration’s other goals will be more politically divisive, and will need to engender the support of moderate democrats in the Senate. Suffice to say, however, that the general path of legislation and regulation will follow the Biden Administration’s objectives, which will likely manifest in tax increases and increased regulation of various industries including the energy and financial sectors. The political drama of the coming months will include speculation around mid-term elections, with Democrats having a very slim hold on the Senate and a narrowing majority in the House. For anyone thinking the recent Georgia Senate races were outlier events, stay tuned for 2022. About the Author Jim Rieniets serves as President and CEO of INSBANK, which requires him to manage the day-to-day activities of the bank. He also serves as a director of INSBANK and on the Loan and Investment Committees. Jim has an extensive banking career and leadership background – including holding various roles within the Tennessee Bankers Association (TBA). He currently serves as Government Relations Chair for the American Bankers Association. u