On January 20, 2021, US President Biden was sworn in at the White House. So what has changed in the United States during the past year? The menacing new crown pandemic continues to spread, the US's recovering economy is facing unprecedented high inflationary pressures, and the rift between the political parties has not been repaired.
Under the double attack of the pandemic and high inflation, the correction, recovery, unity, and restoration of the United States that the nearly 80-year-old veteran politician expected when he took the oath of office is yet to appear. So let’s take a look at the measures launched by the Biden administration in his first year and their impact on the U.S. economy and stock markets?
New Variants Spread Hits Pandemic Policies
From the very beginning after taking office, the Biden administration announced a $1.9 trillion new crown relief package and implemented 10 executive measures in response to the pandemic. Some of the measures include speeding up vaccinations and COVID-19 testing and emergency legislation to speed up the production of emerging necessities such as masks. However, looking back at the first half-year of the Biden administration, its polling had been relatively stable, remaining at approximately 54%.
In the first half of 2021, the government promoted large-scale vaccination programs, which led to the quick recovery of the U.S. economy, including the recovery of employment rates and the gradual control over the pandemic. In addition, after Biden was in office for 100 days, the U.S. stock market hit a record high marking the best stock market performance witnessed last in the 1950s when a new president took office. However, after entering the second half of the year, the situation took a sharp turn for the worse.
The successive attacks of the mutations of the COVID-19 virus, especially the Delta and Omicron variants, disrupted the rhythm of the U.S. government. The pandemic gradually counterattacked the U.S. severely, and the number of confirmed diagnoses kept rising. In the past week ending January 5, 2022, the average daily confirmed cases of new coronary pneumonia in the United States reached a high of 553,000, the highest number since the outbreak. The situation triggered a market panic. At the beginning of 2022, U.S. stocks stopped at their historic highs and are still under selling pressure.
In terms of vaccination rates, due to the Biden administration’s vaccination campaigns, the current U.S. new crown vaccination rate is 63.5%. The UK, Canada, China, Japan and other countries have higher vaccination rates. Recently, The Supreme Court rejected Biden’s move to have the employees of large companies be vaccinated or wear masks and be tested every week, saying that the mandate exceeded the Biden administration’s authority. The ruling marks another setback in the Biden administration's anti-pandemic policy.
The Build Back Better Act Blocked
The Biden administration proposed a $3.5 trillion spending bill as early as the end of April 2021, the largest such bill in decades. But disagreements between the two leading parties forced it to be scaled down to $1.75 trillion at the end of October. Ultimately, the bill hit the rocks late last year due to opposition from moderate Democrat Joe Manchin.
The Senate will review the bill again in January 2022 so that every member has a chance to articulate their position. Therefore, the legislative path for the bill is still full of unknowns and faces significant challenges. In a report, Goldman Sachs analysts led by Hages said that the bill’s failure to pass will hurt U.S. economic growth and may put pressure on the dollar and U.S. stocks.
The Inflation Problem Remains Unsolved
Economically, the U.S. inflation rate soared to 7% in December 2021, the highest level in nearly 40 years. The recovery accompanied by high inflation eroded the overall purchasing power of U.S. consumers, which in turn affected the U.S. economy negatively. In the past three decades, annual inflation in the United States has risen by less than 5%, so a large proportion of Americans were unaware of the consequences of high inflation. A poll in December showed that 45% of American households experienced financial difficulties of varying degrees, with low-income households being hit first by the high inflation.
As Biden has been in office for one year, the market is digesting expectations that the Fed will raise interest rates as soon as March 2022. Biden formally nominated Powell for re-election as Fed chairman last year. Biden’s decision not only maintains monetary policy consistency but also strengthens Powell's actions to tackle inflationary pressures.
Investors are betting that the Federal Reserve will raise interest rates three to four times this year, ahead of the U.K. and the European Central Bank, which also strengthens the dollar's bullish outlook but puts pressure on U.S. stocks to adjust their high valuations.
In the new year, taming inflation and maximizing the employment rate are the Fed’s two most important tasks since they also affect Biden's approval ratings. In addition, the mid-term elections in November will be a big test for Biden’s administration. If the pandemic and inflation are not under control, the Democrats may lose control of one of the two houses of Congress, resulting in a slower pace of approving new laws. This month, a poll by Quinnipiac University in the United States showed that Biden's approval rating had dropped to 33%, a new low. Furthermore, this figure is much lower than the approval ratings of former President Trump on the first anniversary of his presidency.
Overall, the first anniversary of Biden's presidency has been rocky, with a mixed transcript, and the rest of his tenure is even more challenging. He will deal with the continued rivalry between the two parties and external competition with other world powers such as China and Russia. In addition, the ever-mutating coronavirus and the multiple issues inherited from the Trump team, including election threats, will keep Biden busy. Time will tell how the Democratic Party under Biden will respond to all the above challenges over the next three years.