On the campaign trail, Mr. Biden spoke of transformative efforts to fund clean energy and other infrastructure investment, which analysts expected would imply the spending of trillions of dollars and the creation of millions of jobs.
The experience of the final six years of the Obama presidency looms large. In that span, Republicans controlled at least one chamber of Congress and blocked any large-scale fiscal policy — and insisted on spending cuts in response to high deficits. Legislative deal-making took place at the margins, if at all. It was the Federal Reserve that played the dominant role in trying to propel an economic recovery, through quantitative easing and other unconventional policies.
Last time, the recovery generated by that combination was a long march back toward prosperity.
In the last recession, Congress passed a large fiscal stimulus bill in early 2009 that helped start an expansion in mid-2009. When Republicans took control of the House in early 2011, they insisted upon a turn toward deficit reduction, and the expansion continued slowly in the years that followed, with help from the Fed’s actions.
From the time that expansion began in mid-2009, it took more than six years for the unemployment rate to fall to 5 percent, its level when the Great Recession began. The Fed’s programs were effective at driving up financial markets, but with less clear-cut benefits for ordinary Americans.
The Fed chair, Jerome Powell, has been vocal about the limits of the Fed’s tools, stressing that the central bank can lend money but cannot spend it. He has called on Congress to use its power of the purse to inject money into the economy directly.
“The upshot of all of this is that the configuration of government means the Fed is going to be expected and required to be even more stimulative than they might have been otherwise,” said Nathan Sheets, chief economist at PGIM Fixed Income and a former Fed and Treasury Department official. “The fiscal impulse is likely to be diminished relative to a blue wave scenario and even relative to a scenario where Trump won and Democrats won the Senate.”
A Biden win should ensure continuity at the Fed, Mr. Sheets said, either because he reappoints Mr. Powell to a second four-year term when his current one expires in early 2022, or because he appoints someone with broadly similar views on monetary policy and credibility on Wall Street, like the Fed governor Lael Brainard or the former chair Janet Yellen.