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Will Infrastructure Investment Pave the Way to a Stronger Economy?

In November, Congress passed the Infrastructure Investment and Jobs Act that reauthorized existing programs and provided more than $550 billion in new funding to help upgrade aging U.S. transportation, water, power generation, and communication systems.


In November 2021, Congress passed the Infrastructure Investment and Jobs Act, a roughly $1 trillion package that reauthorized existing programs and provided more than $550 billion in new funding over the next five years to help upgrade aging U.S. transportation, water, power generation, and communication systems. (1) The American Society of Civil Engineers applauded the bipartisan legislation, calling it a significant down payment on the $2.5 trillion in deficiencies identified in the industry group's 2021 Report Card for America's Infrastructure. (2)

The Act aims to improve public safety and grease the wheels of commerce by making a historic federal investment in physical infrastructure. This large injection of funds is likely to affect how many Americans commute, travel, transport goods, access the Internet, power homes and buildings, and more, with implications for communities, businesses, industries, and the economy.

Where the Money Goes

The new spending is a combination of targeted funds for overdue repair projects and forward-looking programs intended to make the nation's critical infrastructure assets more resilient to climate risks. (3) Here's an overview of the Act's allocated funds:

  • $110 billion to fix deteriorating roads and bridges, and other major surface-transportation projects

  • $66 billion to pay for passenger and freight railway maintenance, modernization, and expansion, primarily to overhaul Amtrak and make rail travel a reliable alternative to driving or flying between more U.S. cities

  • $65 billion to build out broadband Internet in underserved areas and subsidies to help lower-income households pay for high-speed Internet access

  • $65 billion to update the electric grid and help protect it from severe weather and cybersecurity threats

  • $55 billion to help ensure access to clean drinking water, remove lead service lines, and upgrade wastewater systems (another $8 billion goes toward addressing dwindling water supplies in the West)

  • $47 billion to help states and cities prepare for and defend against more frequent and destructive storms, droughts, wildfires, and other climate impacts

  • $42 billion to expand and upgrade airports, ports, and border-crossing stations, measures that are sorely needed to shore up supply-chain weaknesses

  • $39 billion to repair and revamp public transit and make it more accessible to the elderly and disabled

  • $21 billion to enhance public health and create jobs by cleaning up abandoned mines and oil and gas wells, polluted waterways, and contaminated superfund sites

  • $11 billion to improve highway and pedestrian safety and support research

  • $7.5 billion to build out a network of electric vehicle charging stations plus $7.5 billion for low-emission school buses and ferries

  • $1 billion to reconnect communities negatively affected by past infrastructure projects

Anticipating the Impact

Transportation funds are normally allocated to states according to a formula based on population, gas-tax revenue, and other factors, and each state typically decides how to spend the money. Most of the new funding will be distributed under this traditional formula, but $120 billion will be awarded through dozens of new competitive grant programs. (4) The Transportation Department will select recipients from applications submitted by state and local governments, and Congress will have direct oversight, so lawmakers can monitor projects and call hearings to assess the results. It's likely to take at least six months to pass out the money, finalize plans, and kick off projects — and timelines could run longer for grant programs.

Moody's Analytics projects that the law's economic impact will peak in about five years and fade as spending tails off, creating an estimated 556,000 jobs and raising U.S. output by 0.5% by year-end 2026. Other projections vary, but economists tend to agree that greater infrastructure spending eases worker mobility and the transportation of goods, providing a boost to labor productivity, business efficiency, and economic growth. (5)

The additional infrastructure spending will be partially paid for by new revenue and unspent COVID-19 relief funds. However, the Congressional Budget Office found that the Act would add $256 billion to budget deficits over the next decade, so borrowing to cover the difference could offset some of the law's economic benefits. (6)

1, 5) The Wall Street Journal, November 6, 2021
2) American Society of Civil Engineers, 2021
3) The New York Times, August 10, 2021; White House Fact Sheet, November 6, 2021
4) The Wall Street Journal, November 7, 2021
6) Congressional Budget Office, August 9, 2021

Shifting from Extreme Stimulus

When the economy shut down in March 2020 in response to the COVID pandemic, the FOMC took extraordinary stimulus measures to avoid a deep recession. The Committee dropped the federal funds rate to its rock-bottom range of 0% to 0.25% and began a bond-buying program that reached an unprecedented level of $75 billion per day in Treasury bonds. By June 2020, this was reduced to $80 billion per month and remained at that level until November 2021, when the FOMC decided to wind down the program at a rate that would have ended it by June 2022. (5-6)

The December decision accelerated the wind down, so the bond-buying program will end in March 2022, at which point the FOMC will likely consider raising the federal funds rate. Although it's not certain when an increase will occur, the December projection is that the rate will be in the 0.75% to 1.00% range by the end of 2022 and the 1.50% to 1.75% range by the end of 2023. (7)

Rising Interest Rates

The Fed's current plan is aimed at slowing inflation by returning to a more neutral monetary policy; this represents confidence that the economy is strong enough to grow without extreme stimulus. If these are the only actions required, the impact may be relatively mild. And the first rate increase will likely not occur until the spring.

Even so, rising interest rates make it more expensive for businesses and consumers to borrow, which could impact corporate earnings and consumer spending. And rates have an inverse relationship with bond prices. As interest rates rise, prices on existing bonds fall (and vice versa), because investors can buy new bonds paying higher interest.

On the other hand, higher rates on bonds, certificates of deposit (CDs), savings accounts, and other fixed-income vehicles could help investors, especially retirees, who rely on fixed-income investments. Brick-and-mortar banks typically react slowly to changes in the federal funds rate, but online banks may offer higher rates. (8)

As 2022 begins, inflation is a far greater concern than rising interest rates, and it remains to be seen whether the Fed's projected rate increases will be enough to tame prices. For now, it may be best not to overreact to the policy shift and maintain an investment portfolio appropriate for your long-term goals.

U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of all bonds fluctuates with market conditions. Bonds not held to maturity could be worth more or less than the original amount paid. The FDIC insures CDs and bank savings accounts, which generally provide a fixed rate of return, up to $250,000 per depositor, per insured institution. Forecasts are based on current conditions, subject to change, and may not come to pass.

1, 4, 6–7) Federal Reserve, 2021
2) U.S. Bureau of Economic Analysis, 2021
3) U.S. Bureau of Labor Statistics, 2021
5) Federal Reserve Bank of New York, 2021
8) Forbes Advisor, December 14, 2021


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