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Another massive stimulus bill nears passage

March 09, 2021

Graph depicting the unemployment rate one year after the outset of recessions

Source: Bureau of Labor Statistics

The Senate passed the $1.9 trillion American Rescue Plan of 2021 over the weekend, paving the way for House approval and President Biden’s signature later this week. The package incorporates direct stimulus payments, extended unemployment benefits, and aid to state and local governments among other provisions and will bring the total fiscal policy support since the recession began last year to approximately $5.0 trillion, or more than 20 percent of GDP. Contrast this to the Economic Stimulus Act of 2008 and the ARRA of 2009, which together accounted for less than 6.5 of GDP (note as well that the economy is almost inarguably in much better shape today than it was at the turn of the last cycle; at the time of the Recovery Act in 2009, the jobless rate stood north of 8.0 percent and consumer confidence was hitting an all-time low).

In fact, fiscal stimulus in the current cycle greatly exceeds that in any period in U.S. history save the Great Depression (the St. Louis Fed estimates that New Deal programs amounted to 40 percent of 1929 output). Fiscal policy is not the most efficient means of spurring near-term economic performance – note the spikes in the household saving rate in the wake of the two packages passed in 2020 – but these numbers are massive enough to add to what was already shaping up to be an extremely constructive backdrop. There are some emerging headwinds (rising long-term yields, global shipping dislocations, new COVID variants, etc.), but these are dwarfed by the towering and still-gathering tailwinds.

Large-scale fiscal stimulus also means another dose of liquidity for financial markets that are already extremely well-bid. Equities, at least, have turned choppier over the last month as is typical when a bull market approaches its one-year anniversary, but the combination of overwhelming fiscal and monetary stimulus, developing feedback loops, and a growing and increasingly aggressive investor class should mean that the intermediate to longer-term risk are still decidedly to the upside.

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