President Joe Biden’s $ 1.9 trillion US recovery Act scored 75% openly approvedand it has all the conveniences of reliable Democratic constituencies – money to State budget, union pensions, universitiesand the like – usually little to do with pandemic.
Now his infrastructure package rife with little spending related to rebuilding American roads, bridges and the like, but this time the Democrats in Congress can prove harder unite. And as the pandemic recedes, the Federal Reserve is showing less cooperation to monetize record deficits as Biden is even looking to spend more to Build a better back.
That’s a lot of bonds for sale – even when proposing a tax increase.
Price tags for repairing US infrastructure and power grids, accelerating the construction of windmills, solar and tram, reduce inequality by permanently introducing a year-long stimulus package for children, dependent care and earned income tax credits and food stamps, strengthening supply chains for appliances medical and semiconductors, while promoting R&D to meet the challenges that China demands at least $ 1 trillion a year.
One trillion here, one trillion there
The federal deficit is $ 3.1 trillion by 2020, or about 15% of gross domestic product. Before the $ 900 billion stimulus was passed during the weak days of the Trump administration and ARA, the deficit for 2021 was on track to drop a bit. under 1 trillion dollars. Now it is predicted to be $ 3.4 trillion this year and $ 1.6 trillion next year.
Add to that another $ 1 trillion on infrastructure bills and the rest of the Build Back Better, and that’s a lot of bonds to sell – even in the wake of the proposed tax hike.
Each month, the Fed prints money to buy Treasury, mortgage-backed securities and other securities. During the pandemic, it printed the amount needed to finance the deficit of 3.1 trillion dollars and push rates on the 10-year Treasury down below 1%.
We are not getting much new inflation in the markets for goods and services, because households have used many of their stimulus tests to pay off debt, hoard cash and invest. Then cause property price inflation. Last year, stocks
With Herd immunity in the United States of sight, Many sectors of the economy are headed for maximum capacity, and the Fed has a binary option. It can endure households spend more cash come increase inflation or dial its money printer.
Chairman Jerome Powell told us he expects a temporary price increase but not an inflationary spiral and is determined to keep cash flow for full employment,
Fed has tightened
The latter will be difficult, because Many old workers will not return anytime soon, and they may be stuck in lower-paying or part-time jobs. Employers in the hospitality, aerospace, entertainment and other industries will not return to pre-pandemic levels anytime soon, and the economy will need more appropriate monetary policy, excess demand. in other areas and inflation to surpass that reality.
Powell’s actions believed his words. The yield on a 10-year Treasury bond goes up, because he doesn’t buy nearly as many bonds This year.
That is monetary tightening and will slow the recovery momentum.
The yield on 10-year treasury bonds is higher
The Fed advertised as its policy rate and has held close to zero since March 2020.
As the months passed, unemployment – especially U6These include part-time workers who cannot find a full-time position and those who are not currently looking and don’t believe they can find a good job—can remain high.
Then you will see the sweat pouring down Messrs’s eyebrows. Biden and Schumer as they think about mid-term results in congressional regions and states where Democrats have only been dominant over Donald Trump’s unpopularity.
Pressure would cause another large mediation bill. Much of the tough leftist agenda in Congress – for example, promoting a 28% increase in corporate tax rates – doesn’t get 50 votes in the Senate or even a majority in the House, That is the ballet to reach agreement on what the infrastructure package will eventually resemble There was a ruckus in “West Side Story“More than” Swan Lake “.
High interest rates will slow recovery but not enough to stop inflation. Minority leader Mitch McConnell probably goes without saying much by 2022 – the Democrats’ internal craftsmanship and fighting could run his campaign.
Peter Morici is an economist and professor emeritus of business at the University of Maryland and a national columnist.