HomeImplications of Biden Package on the American GDP

Implications of Biden Package on the American GDP

The “Biden bounce” is in full display – while near-term challenges do exist, the longer-term perspective looks brighter in the United States. Ongoing Fed support coupled with major fiscal stimulus has led the stock market to keep making all-time highs. 

The dollar remains mixed so far as the financial markets move in a tight correlation. If in January we have seen a decoupling from the stocks and dollar moves, February brought back the “herding” trade, in the sense that all orders move in a similar direction with the stock market.

The Biden package’s impact on the real GDP will define its term. As the picture below shows, the impact of the $1.9 trillion stimulus and the previous $900 billion from last year will have strong repercussions in America’s economic growth in the years ahead.

Four Pillars to Sustain Economic Growth

America’s economy contracted sharply in 2020. COVID-19 triggered a sharp recession, but not as acute as seen in other parts of the world. For comparison, the U.S. economy shrank 3.8% in 2020, while the United Kingdom’s one shrank the most in the last 300 years. As such, we may say that America started the new year already with a competitive advantage when compared to its peers.

Corporate America is made of tech, industrials, and financial corporations with global businesses. But America lags other advanced economies in infrastructure – something that will change drastically in the next few years. This is where the state will work closer to local governments and where the federal spending will go. In turn, jobs will be created, and thus the economic output will increase in consequence.

Another pillar to sustain economic growth is direct aid to businesses. The bigger chunk of this help will go to the most affected sector, small businesses, as they are the backbone of the American economy and suffered the most during the pandemic.

America is likely to become more competitive and faster due to the fact that it gained the vaccination rate with the rest of the world. Only the United Kingdom has a larger percentage of inoculated persons than the United States, but the United Kingdom has yet to face the impact of Brexit. We don’t mention Israel here because the difference in the economic output is too big.

Direct aid to families and financially vulnerable households come to complete the fiscal help in the new package. All these measures are expected to increase the U.S. output at the fastest pace than rival economies, putting traders at test – will the dollar continue to weaken because of increased fiscal and monetary easing, or will it reverse course to reflect a stronger economy?

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