With less than a week to go until Biden’s administration will be in charge of the White House, it is appropriate to have a look at what is in his economic agenda. Democrats literally have all the control and can push any legislation they want.
Before anything, consider that Biden was vice-president under the Obama era. Moreover, Obama campaigned in 2020 for Biden, so the likelihood is that we will see a continuation of the programs seen during the Obama years in power.
Why Do Markets Care and What to Expect?
Markets function on “steroids” provided by the Federal Reserve and the Congress. On the one hand, the Fed eased the monetary policy to the extreme. On the other hand, Congress injected trillions into the financial system, with a big chunk of the new money ending invested in the market.
Right from the start, the market expects that the Biden administration will unveil new relief aid. Among other things, the plan will focus on more vaccine funding distribution money, but also on bigger checks sent to families.
In the medium term, the new administration will focus on three main components. One is an infrastructure plan worth over $1.3 trillion and spread over a decade. Second, an extension of the Obamacare program worth about 0.4% of the Gross Domestic Product (GDP) per year. Finally, the United States committed under the Biden rule to make the transition towards renewable energy – a green transition, just like Europe did with the Green Deal program.
No matter how you put it, this means more stimulus for the economy. Infrastructure spending is one of the pillars of fiscal policy and one way governments have at their disposal to expand the policy. Besides upgrading the infrastructure, it will create much-needed jobs, so the $1.3 trillion will effectively come out of the government’s pocket and support the economy directly.
With a divided Congress, much of these projects were doubtful. Not anymore, as Democrats have the majority.
The only thing that may hurt the stock market is the promised corporate tax hikes. However, if one looks at the big picture, the balance leans towards stimulus in the fiscal space, so the markets should be supported on any correction.
One more goal, perhaps more important, remains on Biden’s agenda. To unite a country profoundly divided.
How much of all these will be accomplished after four years of Biden’s administration?