Recent and Near-Term Fiscal Policy: Headwind or Tailwind?

Meisenbacher, Brigid C.; Wilson, Daniel J.

Journal Article

Recent and Near-Term Fiscal Policy: Headwind or Tailwind?

Abstract: The federal government routinely uses government spending and taxes to help offset the highs and lows of the U.S. business cycle. While government spending typically increases during a recession, the magnitude of the fiscal expansion during the pandemic recession was outsized compared with the average historical pattern. This likely contributed to real economic growth and possibly inflation during the recovery. Over the next few years, U.S. fiscal policy is expected to be roughly neutral, providing neither a tailwind nor headwind to the overall economy.

Keywords: government spending; taxes; pandemic; recession; inflation; economic growth; fiscal policy;