In November, at the Port of Baltimore, President Biden addressed inflation with his Build Back Better plan and improving US infrastructure. His comments were interpreted as an acknowledgment that the $1,400 American Rescue Plan stimulus payments caused inflation.
During his speech, Biden discussed the US’s production problems, including inadequate infrastructure due to decades of underinvestment. Concerning the effects of the covid-19 pandemic and climatic calamities, Biden stated that they produce price increases in America.
Effect of Stimulus Check on Inflation
According to AS News, a detailed analysis of the impact of stimulus checks on inflation has not yet been carried out. The Paycheck Protection Program, improved pandemic unemployment benefits, the expanded Child Tax Credit with its advance payment scheme, and other covid-19 relief measures were all implemented as a result of their inclusion in several covid-19 relief measures.
These have pumped trillions of dollars into the economy, with the American Rescue Plan (ARP) alone authorizing $1.9 trillion in disaster relief and economic stimulus in fiscal year.
“The irony is people have more money now because of the first major piece of legislation I passed. You all got checks for $1,400,” Biden said, as quoted in the report.
It was also reported that the American Rescue Plan’s impact on inflation was studied by the San Francisco Federal Reserve Bank. The report showed that Biden’s stimulus is momentarily raising inflation but not generating so much trouble.
According to their research, the ARP will raise inflation by 0.3 percentage points in 2021 and 0.2 percentage points in 2022.
Should Have Been Smaller
As reported by Phil Star Global News, some economists believe that the stimulus should have been more concise and targeted in its approach.
Jason Furman, a Harvard Professor and an adviser of former president Barack Obama, said that his position last year was that the stimulus program was necessary, but that it should be smaller. Instead of being $2 trillion, it could have been $1 trillion.
Treasury Secretary Janet Yellen stated on Thursday, according to the report, that she expects pricing pressures to subside and inflation to fall down to about two percent by the end of 2022 as supply difficulties subside and the Federal Reserve boosts interest rates to combat inflation.
However, she stated that the Federal Reserve Board has a role to play and that monetary policy must be re-calibrated in order to assist those adjustments. The Federal Reserve is likely to raise the benchmark borrowing rate from zero in March and to raise it as many as four more times this year in order to keep inflation under control.