Two recent developments could have big implications for the US economic outlook: general elections and news of very promising progress on a COVID-19 vaccine. To understand the ramifications, we have to distinguish near term from longer term.

We’re not revising our economic forecasts just yet, as we wait for more confirmation on both fronts. However, the benchmarks that we need to follow in the next few weeks are much clearer today than they’ve been in months.

Two Factors, Two Distinct Potential Impacts

As we see it, the two factors point in opposite directions. The likely election outcome, pending legal challenges and runoffs, has Democrat Joe Biden winning the presidency and Republicans retaining Senate control. This balance of power will likely create headwinds for more fiscal stimulus.

The vaccine news, in contrast, is unambiguously positive. A better vaccine available to more people faster than previously expected would be a huge boost to public health and the economic outlook, even if it could take many months to distribute widely. Simply put, if the health crisis ends sooner than expected, the amount of near-term stimulus needed to shore up the economy may be smaller than previously thought. That’s good, because a smaller stimulus package is what we’re likely to get.

So, how do we balance these two developments?

Near Term: Vaccine Success vs. Stimulus Headwinds

The key is to consider two different time horizons. Near term, even if the vaccine is successful, more stimulus is needed. Ten million people are out of work and roughly 21 million are still receiving unemployment support.

While progress toward an effective vaccine is excellent news, the vaccine itself won’t come soon enough to address near-term economic headwinds. Distribution of a vaccine next year doesn’t put people back to work today. It’s going to take time for any vaccine to impact growth directly, and government support remains essential to keeping the economy afloat in the meantime.