The inflation risk from Joe Biden’s stimulus plan is exaggerated

The challenge is to fight the economic crisis by raising demand

Rising US bond yields show that financial markets fear Joe Biden’s $1.9tn fiscal package may stimulate the US economy too much and lead to unwanted inflation. But will it? Although the US president’s stimulus package seems massive, it consists of several parts, each with a different economic impact. Nearly 40 per cent of the package, or $750bn, will be used to aid mass inoculations and fund states and local governments. This will not produce much of a boost to gross domestic product, although additional funding for local governments could reduce additional lay-offs, which is a positive.

About $1tn will meanwhile be used for direct income subsidies to households in the forms of rebate cheques, child tax credits and higher unemployment benefits. There is also $150bn of financial aid for vulnerable businesses. Overall, household and business subsidies total $1.15tn, although the size of the final package could be trimmed somewhat because of the resistance by Senate Republicans.

https://www.ft.com/