Research Paper: Biden’s stimulus plan fuels inflation

U. S. President Joe Biden’s $1.9 trillion American Rescue Plan contributes to high inflation but it isn’t expected to overheat the economy, a new research paper from the San Francisco Federal Reserve concludes.

The package signed into law in March included stimulus checks, enhanced unemployment benefits, small business loans, aid to state and local governments and relief for airlines designed to speed up the economic recovery following Covid-19 shutdowns.

Seven months later, economists are still debating whether the US economy really needed that much support, given that the recovery was already underway. Today, inflation is running hot, with prices spiking on everything from used cars and gasoline to bacon.

The SF Fed paper finds that the American Rescue Plan helped tighten the labor market and is expected to increase the Fed’s favored inflation gauge by 0.3 percentage points this year and 0.2 percentage points in 2022. Its impact will be “negligible” in 2023.