Why the Biden Economy Can Become the Same Long Slog as the Obama Economy

The experience of the last six years of the Obama Presidency is large. In that period, Republicans controlled at least one chamber of Congress and blocked any large-scale fiscal policy – and insisted on spending cuts in response to high deficits. Legislative bargaining was marginalized, if any. It was the Federal Reserve that played a major role in trying to promote an economic recovery, through quantitative easing and other unconventional policies.

Last time, the recovery resulting from that combination was a long march towards prosperity.

In the last recession, Congress passed a major fiscal stimulus bill in early 2009 that helped to begin expansion in mid-2009. When Republicans took control of the House in early 2011, they insisted on a turn toward reducing the deficit, and expansion continued slowly in subsequent years, helping the Fed’s actions. .

From the time the expansion began in mid-2009, it took more than six years for the unemployment rate to fall to 5 percent, its level when the Great Recession began. The Fed’s programs were effective in running the financial markets, but with less obvious benefits for ordinary Americans.

The Fed’s chair, Jerome Powell, has been vocal about the limitations of the Fed’s tools, stating that the central bank can lend money but not spend. He has called on the Congress to use its power of purse to inject money directly into the economy.

PGIM Fixed Income and a former Fed chief economist Nathan Sheets said, “The opposite of all this is that the government’s configuration means that the Fed is expecting and needs to be even more stimulating.” And Treasury Department officials. “The fiscal impulse is less likely relative to a blue wave scenario and even a scenario where Trump won and the Democrats won the Senate.”

A Biden victory over the Fed should ensure continuity, Mr. Sheets said, either because he reappoints Mr. Powell for another four-year term when his current one ends in early 2022, or because they Appoints someone with broadly similar views to monetary policy and credibility on Wall Street, like Fed Governor Lyle Brainard or former Chairman Janet Yellen.

If the Senate goes with enough coronavirus rescue funds to prevent widespread commercial failures and fast pullbacks by state and local governments, the Biden economy could survive the economic outlook of slow growth. For example, Jefferies strategists say that “skinny” could be in the excitement of $ 500 billion to $ 1 trillion in play.

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