The US Senate confirmed Janet Yellen as the new treasury secretary and will lead the fiscal direction of the new US government. The new fiscal policy is expected to focus on extend economic relief, and intensive cooperation with the Federal Reserve. Let the economy recover as soon as possible which affected by the epidemic.
Yellen's policy priorities
- Economic stimulus and relief package
- Increase corporate tax rate to 28%
- Digital currency regulations
- US trade Policy for China
Extend Economic Stimulus and Relief Package
Support Biden's $1.9 trillion "American Rescue Plan". Yellen said “Without further action, we risk a longer, more painful recession now—and long-term scarring of the economy later”. This expansion of economic relief must also take into account financial sources. In the short-term, government spending will be injected into the economy, but in the long-term, it is bound to worsen the situation in the United States, which is already a debt-ridden nation. There will definitely be an impact on the financial market.
Corporate Tax Rate Increase
Yellen hopes that the United States will coordinate and cooperate with other economies in the world to increase corporate tax rates to 28% without damaging corporate competitiveness. The corporate tax increase plan will be implemented after the U.S. had significantly overcome the coronavirus and the economy is strong enough. Cooperating with other countries to increase corporate taxes can avoid the attractiveness of investment in other countries, but the premise is that other countries are also willing to cooperate. Avoid the “destructive global race to the bottom on corporate taxation” said by Yellen. It is possible that some companies may still set up subsidiaries in low-tax entry countries, and then obtain high net profits for the purchased goods and sell them to United States. Therefore, a series of supporting measures must be properly completed to avoid losses.
Taxing unrealized capital gains issue to boost government revenues. Investor worried that policy may undermine investor confidence, reduce investment willingness, hurt sentiment among investors and the stock market will fall. Investors need to continue to pay attention to the follow-up actions of this policy and how to calculate the assets every year at what is supposed to be the market value, that is the question.
Yellen argues many cryptocurrencies are used "mainly for illicit financing." Because the relevant anonymity and speed of these transfers, the restrict cryptocurrencies may being used for money laundering or terrorists financing activities need more caution. The market believes that the regulatory mechanism for cryptocurrencies will be more stringent in the future, the sentiment of the bulls will be affected, the market value of transactions may continue to be affected, the rise will be weak, the volatility will intensify, and the market will turn from long to short.
US trade Policy for China
"China's undercutting American companies by dumping products, erecting trade barriers, and giving illegal subsidies to corporations," said by Yellen. “Stealing intellectual property and engaging in forced technology transfer or subsidies that provide an unfair technological advantage.” And labor and environmental standards. The United States will use the “full array of tools” to against China's abusive unfair and illegal trade economic practices. Moreover, the new government will be no immediate lifting of tariffs on China, and consult with allies to collectively pressure China, which is bound to have a certain impact on the Chinese economy and stock market.
The market is still observing the impact of the new fiscal policy, so the stock and foreign exchange market may experience extreme fluctuations in response to these policies. It may be necessary to continue to study the actual actions of the new government, as well as the economic and epidemic situation of other countries around the world.