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Yellen likely to outline big spending plans at confirmation hearing

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On Tuesday afternoon, Joe Biden’s nominee for Treasury Secretary, former Federal Reserve chair Janet Yellen, will appear before the US Senate’s Finance Committee for a confirmation hearing to serve in the incoming president’s administration before his inauguration on Wednesday.

Investors will be watching the hearing closely for any information Yellen will impart about spending plans for the new administration, particularly relating to how Biden plans to overcome the raging coronavirus pandemic in the US, which so far has killed nearly 400,000 Americans, almost as high as the World War 2 death toll, as well as restart the struggling US economy which has been severely damaged by the effects of the virus and lockdown measures.

In terms of an economic recovery, recent reports suggest the Biden presidency is looking to start off with a bang, with prepared remarks that Yellen will deliver to the Senate committee stating that the incoming administration will “act big” and inject more spending into the economy to avoid “long-term scarring” from a drawn-out recession.

The report went on to say the Yellen will tell the committee that concerns over the US deficit should take a back seat to the economic turmoil at hand, saying that with interest rates at “historic lows” now was the time to make bold moves and that “the benefits will far outweigh the costs”.

Yellen’s comments will likely lift the hopes of many hoping for a spending bonanza from Biden, who last week unveiled a US$1.9 trillion package of spending measures that include US$1,400 cheques to individual Americans as well as increased funding for COVID-19 response and aid to individual states.

Aside from this initial spending splurge, Biden is also reportedly planning another recovery spending plan that could see increased government funding for green energy, infrastructure, education and healthcare partially funded by increased taxes on corporations and the wealthy.

Massive spending from the US government is likely to push down the value of the dollar as an influx of federal cash is likely to raise the spectre of inflation, however, equities could receive a boost from the plans provided earnings are not hit too hard by the prospect of corporate tax increases to fund the package.

Industries in line for a potential boom on the back of the spending plans include those in infrastructure and renewable energy, however, tech stocks may find themselves under pressure following their ascent in 2020 as the prospect of stricter regulations on some of the industry’s largest players returns to the fore and regulators across the world work to advance new lawsuits and rules to rein in the sector.

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