President Biden Dreams $3 Trillion for Infrastructure, as Fed Could Help with Yield Curve Control

Posted on 03/24/2021

The last few U.S. presidents have attempted to get an American infrastructure bill to fund needed infrastructure across the country. Former President Donald Trump tried to get a U.S. infrastructure package, but had trouble within his own party and the Democrats. Trump’s plan in February 2018 was US$ 200 billion in federal funding and US$ 1.5 trillion from the private sector. Biden is up to bat – this time his party controls both the U.S. Senate and House. Biden is seeking to get a massive US$ 3 trillion spend for an infrastructure package. The package looks to be split into two bills for higher chances of bipartisan support. The other package isn’t really an infrastructure plan, but more of a handout to the academic sector of the U.S., which would include paid leave benefits, funding preschools, and community college funding. During his presidential campaign, Biden said he would be open to raising taxes to pay for various agenda items, including American infrastructure. Biden endorsed increasing the top marginal tax rate to 39.6% and taxing capital gains and dividends at the higher ordinary income tax rate. Earlier, Biden signed a US$ 1.9 trillion bill toward COVID-19 relief.

Longer-dated U.S. interest rates have been trading higher in the last few months. Recent U.S. fiscal stimulus could cause short-term inflation pressures in America. For example, direct payments to consumers driving inflationary fears. Federal outlays as a percent of GDP have spiked to record levels.

The amount of outstanding debt is worrying investors. The Federal Reserve could always launch a yield-curve control operation. This operation attempt to prevent gapping yields on 10-year bonds and 30-year bonds. The Federal Reserve would effectively buy the bonds to keep the bond rates low.

Keywords: Federal Reserve System.

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