On March 11, 2021 the president signed the American Rescue Plan into law, providing a new round of stimulus checks to millions of Americans. That’s an example of fiscal stimulus, not monetary stimulus. Monetary and fiscal policy sound similar, and they are both ways the government can influence the economy. Monetary policy involves the money supply and interest rates, while fiscal policy focuses on taxation and government spending. When there’s an economic slowdown, they typically take the form of stimulus plans like the CARES Act (fiscal stimulus) or quantitative easing (monetary stimulus). Understanding how fiscal and monetary policy are similar and how they differ can help you better understand how government stimulus could affect your portfolio.
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