More Federal Spending Is a Boon to US, Says JPM

Higher federal spending is bringing many benefits to the U.S., according to J.P. Morgan Asset Management, ranging from boosting renewable energy to hastening health-care advances. And any resulting inflation is containable.

The firm’s in-depth study of changes following the pandemic, called “The post-COVID world comes into focus,” declared that bigger Washington largesse will prompt larger private spending on necessary societal needs.

Two significant pieces of legislation, signed by President Joe Biden, will produce a “multiplier effect” with the federal actions inspiring the private sector to shell out twice the Washington outlays, the report stated. Such an industrial policy, it contended, means that “markets alone will no longer determine winners and losers as the playing field is tilted to produce desired outcomes.”

In JPM’s view, the upsides of the stimulative policy will bring large expansions of solar and wind power, carbon capture programs, many more electric vehicles, necessary additions and improvements to “legacy infrastructure” (roads, bridges, tunnels, etc.) and accelerated medical breakthroughs.

The report brushed aside concerns by deficit hawks that all the fresh federal spending will end up hindering economic expansion and potentially spark lofty and permanent inflation—and elevate interest rates, thus potentially crowding out investments in corporate and other private-sector debt such as mortgage-backed securities.

Congressional Republicans, in the recent federal debt ceiling fight, which came close to provoking a federal default, have taken a dim view of Biden’s increased spending. They warn that a dire future awaits as a result. Objections to the administration’s approach range beyond the GOP, with the nonpartisan Committee for a Responsible Federal Budget sounding warnings.

But JPM argued that extra government spending and the private efforts that this should encourage—which it called “crowding in”—will produce no economic harm. While conceding that past government spending surges have spurred inflation, the effect was not long lasting, the firm averred.

The study commented: “We see limited real-world evidence that deficits and prevailing interest rates are highly correlated … the crowd-in argument better describes the experience of the last two decades.”