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Weekly Economic Monitor – The Fiscal Policy Outlook

By Scott J. Brown, Ph.D., Raymond James

The Fiscal Policy Outlook – As expected, the new administration has hit the ground running. In his first two days in office, President Biden issued executive orders which rescinded a number of previous directives or were aimed at ending the pandemic and easing the pandemic’s economic impact. For investors, the bigger issue seems to be the prospects for further fiscal support. Biden has proposed a $1.9 trillion package. That’s on top of the $900 billion passed at the end of last year. Passage of a bill this size will be an uphill battle, as the Democrat’s advantage in the House and Senate are as narrow as they can get. Still, it’s worth taking a step back and looking at fiscal policy over the last decade and what lies ahead after the pandemic has passed.

This Week – The Federal Open Market Committee is widely expected to leave short-term interest rates unchanged and to maintain the current monthly pace of asset purchases ($120 billion). In his press conference, Chair Powell is likely to repeat that the pace of asset purchases will continue until there is “substantial” improvement in the labor market (that is, not anytime soon). Real GDP is expected to have risen at a more moderate pace in the advance estimate for 4Q20), reflecting strength into the early part of the quarter (1Q21 GDP growth should be more modest). Weekly jobless claims should begin to settle back (although still elevated).

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