This administration’s economic policy agenda (“Bidenomics”) has its fair number of supporters and detractors. But one thing is true: Government spending is increasing at a rate we haven’t seen in decades. And the verdict is still out on how it will affect interest rates and inflation.
Biden’s Covid-19 relief package, as well as his recent pushes for aggressive, new funding for education, transportation, and fighting climate change, mark a historic amount of spending. His overall spending and tax proposals are rooted in three main goals:
- Increasingly income redistribution via taxes
- More federal spending on climate change mitigation and infrastructure
- Stronger fiscal policy against underemployment and “lowflation”
This uptick in spending may be risky for the economy–and potentially your investments. Here’s why: The increased spending could result in the economy and inflation getting too much of a kickstart, and the Federal Reserve will step in and increase interest rates. Plus, in recent times, we’ve seen the debt of the economy fuel market growth. Interest rates are low and consumer and corporate spending is steady, which is great for owners of equity assets such as stocks, real estate and commodities. But if the Fed slams on the brakes by tapering bond buying for their balance sheet, or worse, letting the bonds mature without replacing them, and even worse, eventually increasing interest rates (which they’re planning to do in the not-so-distant future), we can expect the stock market to drop.
Another part of Biden’s administration’s proposed income and wealth distribution strategy could directly affect those with sizable estates. Senator Bernie Sanders unveiled a proposed estate and gift tax reform legislation in March 2021, and if Biden signs it into law, the implications are huge, including the proposed lowering of the federal estate tax exemption from $11.7 million to $3.5 million per person.
An even deeper dive into these proposed policies and their effect on the market can be found in the complete article I wrote for Forbes.