Biden’s cabinet picks for post-pandemic recovery

Mr Biden’s cabinet picks confirm our expectations for a turnaround in US economic and foreign policy. The 46^th president will have the opportunity to re-set US foreign policy while the pandemic injects levels of spending into domestic social-policy and infrastructure that would have been unthinkable as recently as four years ago.

“America is strongest when it works with its allies,” said the president-elect last week, hours after Donald Trump had repeated his “America first” mantra. A month after the US election, it is clear that the incumbent American president and parts of his party may never admit to losing. Proof of the coming policy shift is visible throughout the new administration’s staff picks. The nominees, to be confirmed by the Senate, are all knowledgeable, well-known specialists. The White House cabinet is also set to be the most diverse in US history.

Mr Biden’s team leans heavily on the experience of Barack Obama’s administrations which governed between 2011 and 2015 with a Republican-controlled Senate, and then through 2016 with no majority in either Congressional chamber. The Biden administration’s ability to pass legislation depends on being able to negotiate with Republicans to create political consensus. This is especially true if, as we expect, Congress remains split with the Senate still in Republican hands after Georgia’s state run-offs on 5 January 2021.

Mr Biden’s choices include John Kerry, former secretary of state in the Obama administration and climate veteran, who will spearhead Mr Biden’s ambitious plans in this field, starting with the pledge to re-join the Paris Accord on climate change. Mr Biden’s nominee for ambassador to the UN is Linda Thomas-Greenfield, whose role will be promoted to the cabinet. The pick for secretary of state, Antony Blinken, a former state department deputy to Mr Kerry, says that he wants to work with allies to engage with China and international rules, rather than leave a power “vacuum”. Mr Blinken, a Europhile who has described Brexit as “a total mess”, is likely to be critical of any failure to reach a European Union/UK trade deal. Mr Blinken’s nomination strongly suggests a more constructive working relationship with the EU and allies.

Monetary and fiscal coordination

Ms Yellen’s nomination as Treasury secretary is likely to be a critical appointment for markets because it will determine the US’s path to a full economic recovery. With interest rates persistently low, fiscal support may be more impactful than monetary policy. Ms Yellen is of course well equipped to coordinate with the Fed once an expected fiscal package, which may be worth an estimated USD 500 billion, is finally approved by Congress. As an academic, Ms Yellen is also a labour market specialist who insists that monetary policy should work through financial markets to benefit the real economy.

It is not the first time that monetary and fiscal policy roles have traded places. Christine Lagarde took her experience of fiscal policy as French finance minister to the International Monetary Fund and now the European Central Bank.

Finally, Jake Sullivan, nominated as the Biden administration’s national security adviser, was involved in negotiating the Iran 2015 nuclear agreement, which Mr Trump dropped. Mr Sullivan will now play a role in re-engaging with Iran, and that may be significant for oil market stabilisation. While the role of the Organization of Petroleum Exporting Countries and Russia (OPEC+) is key to that process, we expect the price of Brent crude to remain around USD 50 per barrel in 2021.

Recovery-resilient portfolios

This radically different US leadership confirms our expectations that 2021 will bring an improving global trade environment. We expect that to translate into a weaker US dollar as demand declines for the currency and emerging markets will benefit from less trade friction.

In recent months, we have adapted our portfolios to the improving business cycle by adding exposure to cyclical assets such as European stocks, emerging markets, and small capitalisations. These allocations should all benefit from the anticipated evolution in US politics. 

The distribution of Covid-19 vaccines will help economies to recover to their pre-pandemic levels of activity over the coming year, although at different speeds.

In 2021, it is vital that investors’ portfolios remain well diversified in order to benefit from the expected economic recovery.

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