Economists on Wall Street are debating whether Biden’s “draft” is enough to trigger sustained inflation.
Now that Biden’s $1.9 trillion fiscal stimulus plan is a foregone conclusion, stimulus funds will be injected into the economy and the market at any time. Economists on Wall Street are debating whether Biden’s “draft” is sufficient to trigger sustained inflation.
Mike Feroli, the chief economist of JP Morgan Chase, is one of them. He released his latest view overnight. He believes that although Biden’s stimulus is huge, it will not cause inflation to get out of control.
The U.S. Congressional Budget Office (CBO) currently estimates that the 1.9 trillion American Rescue Plan (ARP) will have an impact on the budget for the next ten years and will increase the cumulative deficit by $1.85 trillion. Due to the reduction in the amount of stimulus checks and the deletion of the previous minimum wage proposal, the CBO’s estimate has been lower than before. However, no matter when compared with any period in history, this number is still huge.
Feroli does not believe that the stimulus plan will cause inflation to get out of control because the funds of the plan will not be injected into the economy at once, but will gradually enter different areas of the economy in the next two years. Although US$1.16 trillion is scheduled to be launched in 2021, Feroli believes that this estimate is too high. He believes that the US$300 billion distributed to state and local governments will be released relatively slowly.
“We are not as worried as Larry Summers (former U.S. Secretary of the Treasury). This stimulus plan will not overheat the economy. One reason is that the federal government will not immediately spend all funds. CBO predicts that there will be 1.16. Trillions of dollars affect the budget for this fiscal year. Even so, its short-term impact has been exaggerated. Even if $300 billion will be quickly transferred to state and local governments, their expenditures will be much slower. In addition, extending the unemployment benefit subsidy will eliminate the recent cliff effect, which is a good thing, but eliminating the cliff effect will not narrow the output gap, but will only prevent it from expanding.”
As for the remaining US$680 billion, more than half of it is used to stimulate check spending. Calculated based on last year’s consumer behavior, consumers will save at least half of them after receiving the assistance.
“So what is more important is how much subsidy consumers will spend on consumption. Most of the evidence last year shows that consumers are more cautious in using these stimulus checks and do not spend the money within a few months after receiving the money. Halfway through.”
JPMorgan Chase stated that the stimulus checks will arrive before the end of the month. “Time will prove everything, and it may not take too long to prove it.” Some high-frequency consumption indicators in the past year have also predicted that these stimulus checks will be how to use.