# Does the US economy need fiscal stimulus? Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2017-02-28 Category: BUSINESS Category URL: https://financedigest.com/category/business Meta Title: US Economy on the Mend: Outlook for 2021 Meta Description: Explore the viewpoint of economists like Ben Bernanke on the US economy's recovery, fiscal stimulus, and growth prospects in the near term. URL: https://financedigest.com/does-the-us-economy-need-fiscal-stimulushtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/bus-atlas-p1-91-242-1736844144919-compressed.jpg) By **David Absolon,** Investment Director at Heartwood Investment Management The US [economy](https://www.financedigest.com/uk-finance-minister-hunt-good-news-the-economy-is-growing.html) is healing and plans for significant tax cuts and higher spending are not needed. That is an increasing view among economists, among them Ben Bernanke, the former Chair of the US Federal Reserve, who recently stated: “With the economy approaching full employment, the need for demand-side stimulus, while perhaps not entirely gone, is surely much less than it was three or four years ago.” As [central banks’](https://www.financedigest.com/marketmind-rba-shock-hike-starts-huge-week-for-central-banks.html "Marketmind: RBA shock hike starts huge week for central banks") monetary policies appeared increasingly defunct to revive [growth](https://www.financedigest.com/standard-chartered-lowers-vietnam-2024-growth-forecast-to-6-0.html) and inflation, the clamour for fiscal spending grew louder in 2016. With [annual growth rates](https://www.financedigest.com/automotive-gas-charged-shock-absorbers-market-worth-will-reach-us-2-9-bn-in-2021-grow-at-overall-compound-annual-growth-rate-cagr-of-5-0-between-2021-and-2031.html "Automotive Gas Charged Shock Absorbers Market worth will reach US$ 2.9 Bn in 2021, grow at overall compound annual growth rate (CAGR) of 5.0% between 2021 and 2031") averaging between 2.0-2.5% year-on-year since the financial crisis and showing no signs of reverting back to pre-crisis levels, the US economy has been cast to be in a low [growth](https://www.financedigest.com/standard-chartered-lowers-vietnam-2024-growth-forecast-to-6-0.html) rut. Fears were compounded in 2016, as the [economy](https://www.financedigest.com/uk-finance-minister-hunt-good-news-the-economy-is-growing.html) saw its weakest [growth in five years](https://www.financedigest.com/the-liquid-chromatographymass-spectroscopy-market-is-estimated-to-witness-stupendous-growth-in-the-years-to-come.html "The Liquid Chromatographymass Spectroscopy Market is estimated to witness stupendous growth in the years to come") at just 1.6% year-on-year. However, much of the downturn in the past couple of years has been due to the [fall in oil prices](https://www.financedigest.com/oil-prices-fall-as-delta-variant-spread-weighs.html "Oil prices fall as Delta variant spread weighs") and a resultant collapse of capital expenditure. Thanks to the recovery in commodity prices, these headwinds are now easing and the oil industry is starting to get back on its feet. Baker Hughes [report a sharp increase in the number of rig counts in operation](https://www.financedigest.com/the-intra-operative-imaging-market-report.html "The Intra Operative Imaging Market Report") in the fourth quarter of 2016. In addition, investment in mining structures and equipment (adjusted for inflation) entered positive territory at the end of 2016, following a [contraction in growth](https://www.financedigest.com/dollar-pares-gains-as-us-growth-contracts-for-second-quarter.html "Dollar pares gains as US growth contracts for second quarter") through most of 2015 and 2016. With the recovery of the [oil sector](https://www.financedigest.com/conocophillips-plans-1-1-billion-investment-as-norway-oil-sector-heats-up.html "ConocoPhillips plans .1 billion investment as Norway oil sector heats up") underway, broader business spending intentions are also now seeing improvements, as evidenced by various national and regional business surveys. This growing sense of optimism has coincided with stronger [global demand](https://www.financedigest.com/mechanical-and-electronic-fuzes-market-one-the-most-booming-industry-in-upcoming-years-due-to-global-demand-in-industry-by-2027.html "Mechanical And Electronic Fuzes Market| One the Most Booming Industry in Upcoming Years Due to Global Demand in Industry by 2027"), particularly from China and the eurozone. For the US economy which has heavily relied on the [consumer](https://www.financedigest.com/inflation-weighs-on-consumer-morale-in-euro-zones-big-three-economies.html "Inflation weighs on consumer morale in euro zone’s big three economies") to prop up the economy, the recovery in business spending is welcome news. Moreover, [labour market](https://www.financedigest.com/spains-labour-market-resilient-as-unemployment-drops-in-nov.html "Spain’s labour market resilient as unemployment drops in Nov") conditions continue to tighten and this is likely to increase nominal wage growth in the short term, helping to at least partially offset some slowing in real income growth as inflation rises. **Upside risks in the [near term](https://www.financedigest.com/automotive-glass-market-to-witness-sales-slump-in-near-term-due-to-covid-19-long-term-outlook-remains-positive.html "Automotive Glass Market to Witness Sales Slump in Near Term Due to COVID-19; Long-term Outlook Remains Positive"), longer picture less clear** Arguably, just as the US economy is starting to see a cyclical upswing and the Federal Reserve continues to have the ammunition to normalise [monetary policy](https://www.financedigest.com/asian-economic-powers-warn-of-risks-from-war-monetary-policy-normalisation.html "Asian economic powers warn of risks from war, monetary policy normalisation") in a gradual fashion, an injection of a significant dose of fiscal stimulus is not without risk. An [economy](https://www.financedigest.com/uk-finance-minister-hunt-good-news-the-economy-is-growing.html) that runs too hot in the next year or two, while not our central view, may further complicate the Federal Reserve’s task of implementing gradual interest [rate increases and reducing its balance sheet](https://www.financedigest.com/ecb-policymakers-back-jumbo-rate-hike-differ-on-balance-sheet-cut.html "ECB policymakers back jumbo rate hike, differ on balance sheet cut") over time without causing significant disruption to financial markets. In the near term, we continue to believe that a Trump presidency represents more upside risk to [growth](https://www.financedigest.com/standard-chartered-lowers-vietnam-2024-growth-forecast-to-6-0.html) and capital markets than if Hillary Clinton had won, as we would [expect overall aggregate demand in the US economy](https://www.financedigest.com/global-fuel-injector-cleaner-market-emerging-economies-expected-to-influence-growth-until-2031.html "Global Fuel Injector Cleaner Market: Emerging Economies Expected to Influence Growth until 2031") to increase. However, one of the main issues for sustained prosperity for the US economy – and indeed relevant to other developed economies – is [productivity growth](https://www.financedigest.com/food-grade-phosphates-market-regional-industry-segmentation-analysis-by-production-consumption-revenue-and-growth-rate-by-2027.html "Food Grade Phosphates Market Regional Industry Segmentation, Analysis by Production, Consumption, Revenue and Growth Rate by 2027"). Efficiency gains can be achieved through targeted spending measures, such as increasing skills and training among the workforce and promoting research and development. How the spending gets distributed and its effectiveness will be important factors in determining the longer [term outlook](https://www.financedigest.com/the-10-year-model-and-beyond-why-you-should-take-a-long-term-outlook-to-investment-strategy.html "The 10-year model and beyond – why you should take a long-term outlook to investment strategy"), including whether economists and markets judge a Trump presidency a success or failure. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---