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INVESTMENT STRATEGY QUARTERLY

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,

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