On Trump’s Executive Action Stimulus

Trump’s Saturday executive orders declaring a payroll tax deferral and extending enhanced unemployment benefits are an economic and political masterstroke. These steps will maintain personal income through the third quarter, sustaining the second quarter boost to Trump’s reelection chances reflected in the sharp reversal in our quantitative forecasting model. The payroll tax deferral is an incentive to marginal labor contribution, and Trump will campaign on forgiving it and making payroll tax reduction permanent. Enhanced unemployment reduced from $600 to $400 per week will sustain the income of the jobless, but reduce incentive barriers to get back to work. Trump wins the stimulus bidding war and will take credit. Meanwhile, Biden had a horrible week of gaffes and embarrassments, very possibly a “Dukakis moment.” He will likely announce his vice presidential pick this week, who we expect will be a divisive figure who will drive Trump turnout. We are becoming increasingly confident that markets are now discounting both a V-shaped economic recovery and a Trump win in November.