Page 8 - ISQ UK_October 2021
P. 8


       U.S. Economic Outlook:

       Fiscal Policy Beyond the Pandemic

        Scott J. Brown, PhD, Chief Economist, Raymond James

        To counter the economic effects of the COVID-19 pandemic,
        U.S. lawmakers approved $5.2 trillion in fiscal stimulus in   The government is not like a household. Our

        2020 and 2021 – over 25% of annual gross domestic product   children and grandchildren do not have to pay off
        (GDP) and more than most other countries. At the end of   the national debt.
        August, the national debt stood at $28.4 trillion. Should
        investors be worried? What do we mean by ‘fiscal stim-  large-scale buying of Treasury and mortgage-backed securities)
                                                            to influence economic activity. In the U.S., Monetary policy is
        ulus’ and have attitudes toward federal deficits and debt
                                                            quick to implement as the Federal Reserve can lower short-term
        changed?                                            interest rates whenever it decides to do so; however, it has a
                                                            long and variable lag and it could take a year or more before
        WHAT IS FISCAL POLICY?                              the full impact is felt. In contrast, the effects of fiscal policy are
                                                            more immediate, though it often takes time to implement. The
        Fiscal policy refers to the use of tax and spending policy to influ-
        ence economic behaviour. Cutting taxes or increasing government   conventional view among economists is that neither policy can
        spending is expansionary (or ‘stimulative’), meaning that it adds   be used to fine tune the economy. Monetary policy is the pri-
                                                            mary tool to guide the U.S. economy, and has been likened to
        to growth. Raising taxes and cutting spending is contractionary,   steering a supertanker, while fiscal policy is reserved for fighting
        meaning it subtracts from growth.
                                                            recessions. However, we’re seeing some debate about whether
        Fiscal policy stands in contrast to monetary policy, which is   the conventional view will continue.
        the setting of short-term interest rates (or also, in recent years,

   3   4   5   6   7   8   9   10   11   12   13