The approval of an economic stimulus package of US $ 1.9 trillion by The US House of Representatives

1 Mar 2021 Written by: Redaksi OCBC NISP

Last Saturday, the US House of Representatives or the DPR in the United States finally approved a proposal for a US $ 1.9 trillion economic stimulus package.

This stimulus aims to overcome the negative effects of the COVID-19 pandemic which has killed more than 500,000 Americans and left millions of people out of work.

Furthermore, the proposal will continue to be discussed at the Senate level, which will test whether the proposed additional budget can deal with economic problems effectively. With the support of the Democrats in the Senate, it is estimated that this proposal can be approved by a majority vote. The US Vice President, Kamala Harris, as chairman of the Senate, although not having the right to vote, but has the power to make decisions if there is a balanced decision (50:50) in the Senate. Thus, market players hope that approval will be reached immediately before the end of the employee assistance program on March 14.

The implementation of this stimulus budget will include the following:

  1. A cash transfer plan of US$ 1,400 for nearly all US citizens and their dependents. However, residents with an annual income above US$ 75,000 will be provided proportionately and an income equal to or above US$ 100,000 will not receive assistance.
  2. Payments of US$ 400 per week for unemployed residents, which will start on August 29.
  3. Addition of a child tax credit program, which will provide a tax incentive of US$ 3,600 per child for each family.
  4. Vaccine distribution budget of US$ 20 billion and US$ 50 billion for the cost of testing and preventing COVID-19.
  5. The budget for assistance to the affected states is US$ 350 billion.
  6. Property lease subsidy assistance of US$ 25 billion.
  7. Assistance for students, and the cost of opening a school of US$ 170 billion.
  8. The UMR increases to U $ 15, from the previous range of US$ 9-12. This is a point that is still being debated among congressional politicians.

Investment Strategy:

Some investors seem to anticipate stimulus and the impact of economic recoveries, such as expectations of rising inflation for bond instruments. The yield on US government bonds or US Treasury 10Y had reached 1.6% in trading last weekend. This level is the highest yield rate in the last year.

However, the plan to provide stimulus is expected to accelerate the recovery of the US economy, thereby increasing investors' risk appetite for risky assets, such as stocks for the medium to long term.

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