March 25, 2021 The American Rescue Plan’s Economic and Financial Impact
Above (L to R): Alec Phillips, Amelia Garnett, Susie Scher and Ashish Shah of Goldman Sachs
As the Biden administration moves to implement the American Rescue Plan, leaders from the firm joined Exchanges at Goldman Sachs to discuss the potential impact on the economy and markets. To start, the plan’s $1.9 trillion size should help accelerate growth and return economic indicators like unemployment to pre-COVID levels, says Alec Phillips of Goldman Sachs Research. In terms of implications for longer-term fiscal policy, “probably the most important thing that came out of this package was the expansion of the child tax credit,” says Phillips, who notes that the structure of periodic payments under the credit could create some momentum for payments to extend beyond the current expiration in September.
Markets are also responding to the legislation, says Amelia Garnett of Goldman Sachs Global Markets, noting the particular impact on retail investing. “Over the next few weeks, around $400 billion in direct payments are hitting American wallets across the nation, and potentially a meaningful share of those could end up in equity markets,” she says. At the same time, corporate activity is picking up on an expected boom in consumption—especially in virus-sensitive industries, such as travel and dining, according to Susie Scher, chair of the global financing group in the firm’s Investment Banking Division. The stimulus “gives our corporate CEOs a lot of confidence to contemplate M&A and investors the confidence to fund it,” she says. Meanwhile, the brighter economic outlook also raises the prospect of higher inflation and interest rates for fixed income investors and for investors’ portfolios more broadly, says Ashish Shah of the Asset Management Division. “This growth is going to be really good for credit quality. And this steep yield curve, as well as credit curves, represent a really good opportunity for investors who want to diversify away from some of the gains they’ve built in the equity markets and [those who] are afraid of rising rates,” he says.