Whatâs Going On Here?Goldman Sachs upped its US growth forecasts over the weekend, but just as noticeable is what the investment bank left out of its updated prediction⊠What Does This Mean?The US just agreed to pump $1.9 trillion into its economy, so Goldmanâs decision to bump up its growth forecast â from 6.9% to 7% this year, and from 4.5% to 5.1% in 2022 â hasnât come as much of a surprise. And while those adjustments might not sound like much, Goldmanâs previous estimates had already taken $1.5 trillion of economic support into account and were already well ahead of economistsâ forecasts of 5.5% and 3.8% for this year and next. There might be more growth to come too: Goldmanâs forecast didnât even pencil in the boost from the potential $2 trillion infrastructure spending the US president touted in his election campaign. Why Should I Care?For markets: Invest in the pickaxes, not the gold.
If the $2 trillion infrastructure investment goes ahead, itâs expected to be spent on building greener homes, expanding the EV charging network, and fixing highways, bridges, and airports. But since itâll need to gather enough political support to pass, thatâs a pretty big âifâ. Still, the prospect alone has pushed up the stocks of companies that stand to benefit â from equipment makers to engineering companies.
The bigger picture: Tax hikes could keep the US economy from overheating.
Spending trillions is easy, but finding trillions is another matter entirely. One potential solution, then, is to up taxes on businesses and the wealthy. And while skeptics might argue that the move would hurt economic growth, that might not be true: higher taxes could curb consumer and company spending, which would slow down price increases at a time when excessive government spending is at risk of pushing up prices too fast (i.e. inflation). Thatâs when the central bank would be forced to tweak interest rates, which could be bad news for your stocks... | 