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Implications of Biden's fiscal policy for US growth

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Implications of Biden's fiscal policy for US growth

Apr 21, 2021

The US economic growth outlook continues to improve. After the passage of the Biden stimulus plan, growth is forecast to be even stronger. The US economy is poised for a strong cyclical rebound and is also at the beginning of a secular technology revolution that should lift productivity and corporate profitability.

  • The Biden administration has passed a USD1.9 trillion COVID-19 relief package called the American Rescue Plan (ARP). This new initiative has increased the total fiscal spending package for COVID relief to approximately USD5.3 trillion in less than one calendar year. The size of the fiscal injection brought forward by the US government is far in excess of the injection of capital in 2009 after the Great Recession. It is notable that the total amount spent on the combined stimulus plans is rapidly approaching the amount spent by President Franklin D Roosevelt (FDR) on a 'New Deal' that helped get the economy out of the Great Depression in the 1930s.
  • A part of the stimulus plan goes beyond targeted COVID-19 relief measures and is more focused on the longer-term recovery of the US economy including infrastructure, green energy, healthcare, and education initiatives. This very large fiscal stimulus, combined with low interest rates, the beginning of a technology revolution that should be productivity enhancing, and the Biden administration's desire to begin a green or sustainable revolution, could all combine to create a 'Green New Deal' that President Biden has so often talked about.
  • The combined effect on the economy and financial markets could be quite positive as it could create better than expected economic growth, productivity and profitability in the US for years to come.

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