Having won the required number of electoral college votes to be considered president-elect, Joe Biden had a mandate to proceed with plans for more fiscal stimulus to kick-start the US economy.
However, with the so-called ‘blue wave’ of forecasted Democratic victories in the Senate elections failing to materialise, Biden may now struggle to get his ambitious plans through Congress.
A Democrat-dominated House of Representatives and a Republican Senate mean that Congress remains at loggerheads with different views on what kind of fiscal stimulus is needed.
Indeed, Senate majority leader Mitch McConnell and Nancy Pelosi, speaker of the House of Representatives, continue to disagree on the nature of the next coronavirus stimulus package.
Republican McConnell has said that the strong US recovery seen so far warrants a slimmer, more targeted aid package.
In contrast, Pelosi continues to support the Democrats $2.2trn stimulus package, which would be more similar to the nationwide-style support seen at the start of the coronavirus crisis.
As such, there may need to be some compromise and lengthy discussions before a deal can be agreed.
This current political gridlock in Congress could be good for company fundamentals in the longer term, but it’s not conducive to a large stimulus package right now, according to Neil Wilson, chief market analyst at Markets.com.
He said: “Will Biden go for a more aggressive approach to containing coronavirus? We know that the greater the restrictions the greater the economic damage. Europe is enduring this reality again.”
On the demand for the policy itself BlackRock Investment Institute (BII), said fiscal policy was critical for preventing permanent economic damage caused by the impact of Covid-19.
It added that while some fiscal stimulus is possible this year, despite the ‘lame duck season’ – the transition period between administrations –the scope and size of fiscal stimulus and public investment will likely be much more modest than what a united Democratic government might have delivered.
These question of ‘when and how much’ are concerning for investors and the market, according to Rathbones’ Edward Smith (pictured), and will probably get answered next year. 
Smith, Rathbones’ head of asset allocation research, said once the dust had settled on the presidential election markets are likely to see an agreement even if Congress remains split.
But he added that the wait for new stimulus to come in “may rattle markets” and cause growth to substantially decelerate.
Smith said the major government stimulus so far during the crisis it has created an unusual recession, whereby personal incomes actually increased because unemployment support was so immense.
Indeed, in some cases, workers who had been furloughed were earning more than their employed colleagues.
He said that a gap between policies would cause growth to dip, something which was seen in August but he said was corrected by the new stimulus in September.
“But, if we had to wait until February for some more money to be dished out there that could start to rattle markets a little bit,” Smith said.
“The great failures to recover from massive economic shocks over the last 100 years are characterised by not just a slightly delayed willingness or ability to act by policy makers but by a multi-year absence of stimulus on sufficient scales, such as America in the 1930s or Japan in the early 1990s.”
He continued: “We’re not talking about them missing out on a couple of months, we’re talking about delaying reaction by years.
“And I think that’s why the difference between getting extra stimulus in November or the difference in getting extra stimulus in February is really not that great.
“It could drive a big of volatility, but the long-term impact we’re sceptical that it would be meaningful.”
While the long-term outlook for markets may not be meaningfully impacted by a delayed fiscal package Smith acknowledged that in the short term there could be some negative consequences.
Indeed, higher unemployment, more business closures and volatility in markets could all occur during the wait time.
He said: “So, yes, that fiscal policy backstop has been helping markets drive forward over the last six months is removed, but it’s only been removed temporarily.
“We are likely to get some degree of fiscal stimulus at some stage in the next few months, and maybe we have to wait until January, February but it will be there.”
He concluded: “If the economy needs more of a boost in the meantime then having to wait an extra one or two months might mean a bit of economic scarring but in the long-term is it really going to make all that much difference? No, I don’t think so.
“Meanwhile, you’ve still got that monetary policy backstop there as well.”