Goldman's chief economist breaks down why a Biden-led blue wave would prompt an upgrade in growth forecasts

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  • A blue wave this November led by Democratic presidential nominee Joe Biden would lead to a surge in economic growth, according to Goldman Sachs.
  • Goldman said in a note on Monday that Democratic control of the presidency and Congress would raise the probability of a fiscal stimulus package worth at least $US2 trillion.
  • Longer-term spending measures proposed by Biden targeting infrastructure, climate, healthcare, and education would also help boost economic growth prospects, Goldman said.
  • Visit Business Insider’s homepage for more stories.

Current polling suggests a blue wave led by Democratic presidential nominee Joe Biden is becoming more likely, as he extends his lead following last week’s presidential debate, Goldman Sachs said in a note on Monday.

Democratic control of the presidency and both the House and the Senate would likely lead to a surge in economic growth, according to Goldman, as it would give Biden and his party more latitude to pass their legislative agenda.

If Biden does win in the upcoming November election, the probability of a fiscal stimulus package being passed would sharply increase, which would likely be worth at least $US2 trillion and pass shortly after the presidential inauguration on January 20.

That stimulus would help boost short-term growth in the economy, but longer-term economic growth forecasts would be lifted by spending increases on infrastructure, climate, healthcare, and education, the note said.

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Those spending increases would “at least match the likely longer-term tax increases” on corporations and higher-income earners, Goldman said.

Assuming the Fed leaves rates unchanged until the economy reaches full employment and inflation is just above 2%, “we estimate the net effect of the [Biden] package would be a frontloaded increase” to economic output, “as well as a more backloaded boost to core PCE inflation,” Goldman explained.

Still, a blue wave would indeed have “mixed implications” for US stocks, as Biden is advocating for a 7-percentage-point increase in the corporate income tax rate, to 28% from 21%, Goldman said.

On the positive side, investors should expect from a blue wave the following: “easier US fiscal policy, a reduced risk of renewed trade escalation, and a firmer global growth outlook,” Goldman concluded.

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