- President-elect Joe Biden's $1.9 trillion rescue plan could boost nominal GDP growth to 11.4% year-over-year by the end of 2021, says JPMorgan's David Kelly.
- The chief global strategist said on Tuesday that the plan could also cut the unemployment rate to below 5% by the end of this year.
- JPMorgan estimates that nominal GDP was on track to rise by 6.4% year-over-year by the end of 2021 before the Biden plan.
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President-elect Joe Biden's rescue plan could have "significant impacts" on the economy in 2021 and dramatically boost GDP, according to JPMorgan's chief global strategist, David Kelly.
The rescue plan Biden laid out last Thursday would cost roughly $1.9 trillion and would include a new round of direct payments to individuals of $1,400 per person, $400 enhanced unemployment benefits, and funding to support school reopenings and swift vaccinations, among other efforts. In a speech last Thursday, Biden said he wants to push the plan through Congress as quickly as possible.
Using a simulation of the plan where $1.2 trillion is spent in 2021, Kelly estimates that it could boost nominal GDP growth to 11.4% year-over-year by the end of 2021. Most of that would come in the form of stronger real GDP growth. Kelly also said that the plan could cut the unemployment rate to below 5% by the end of 2021.
JPMorgan estimates that nominal GDP was on track to rise by 6.4% year-over-year by the end of 2021 before the Biden plan.
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Here are some of the additional predicted economic impacts of the plan, according to Kelly:
- "Extended, expanded and enhanced unemployment benefits through September should significantly reduce poverty until the pandemic winds down. Importantly, however, a $400 weekly supplement, as opposed to the $600 supplement in the CARES Act, would give most laid-off workers a financial incentive to return to work when possible."
- New stimulus checks of $1,400 per person would support consumption over the next few months and could lead to a spending boom in the fourth quarter of 2021 when families spend on services which are shut down right now.
- Additional spending on vaccinations could hasten the end of the pandemic and stimulate the economy.
As for the investment implications of the Biden rescue plan, Kelly said faster economic growth could boost cyclical stocks and particularly financial stocks relative to defensive stocks. But it may lead to slumping asset performance down the road.
"With current valuations at very high levels, 2021 already looked like a difficult year for financial assets. On balance, the Biden rescue plan, if implemented, could add to those challenges," Kelly said.
Biden also called for more spending through a "recovery plan" which he will outline in more depth in his address to a joint session of Congress in February.
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