Supreme Court fight after Ginsburg's death shapes banks' economic outlook

(Reuters) – President Donald Trump’s bid to quickly fill the U.S. Supreme Court vacancy left by Friday’s death of liberal Justice Ruth Bader Ginsburg could end the already remote chance of a pandemic relief package before the election, bank analysts say.

A jabot collar is seen placed on the Fearless Girl statue outside of the New York Stock Exchange (NYSE) in honor of recently passed Associate Justice of the Supreme Court of the United States Ruth Bader Ginsburg in Manhattan, New York City, U.S., September 21, 2020. REUTERS/Andrew Kelly

But it may raise the odds of a Democratic sweep in the Nov. 3 election, which would likely mean a bigger stimulus package afterward to fight economic impacts of the coronavirus.

“The Supreme Court vacancy is likely to motivate the political base of both parties and will displace the coronavirus and geopolitical tensions with China as a dominant topic in voters’ minds,” UBS economists wrote in a note over the weekend.

If Trump and the Republican-controlled Senate move to install a conservative judge on the highest U.S. court before the election, they wrote, expect “an even more aggressive policy agenda by Democrats” if they retake the Senate and Democratic presidential nominee Joe Biden beats Trump.

UBS analysts believe a Biden win is the likeliest election outcome.

A new fiscal package is critical to the economy’s recovery, Federal Reserve Chair Jerome Powell is expected to tell lawmakers at three separate hearings on Capitol Hill this week. Wall Street’s main indices hit their lowest in nearly seven weeks on Monday, on fresh concerns a package could be delayed.

Republicans and Democrats in Congress, already deadlocked over a stimulus package, are now focused on the fight over the Supreme Court vacancy, making a package less likely to pass, analysts at TD Securities wrote in a note on Monday.

The fight over the Supreme Court seat “might also increase the odds of the Democrats capturing the Senate in the election,” they wrote, an outcome widely thought to boost chances of a bigger fiscal stimulus.

That in turn could have big consequences for the speed of a recovery.

“If the 2020 election results in unified Democratic government, this would likely allow a President Biden to pass a large spending increase,” Goldman Sachs economists wrote in a note before Ginsburg’s death.

That could spark a faster-than-expected recovery, Goldman Sachs analysis suggested, pulling forward the date when the Fed would need to start to raise interest rates “by up to two years.”

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