There are additional considerations. If a large one-off fiscal stimulus to deal with an unprecedented shock, such as the COVID-19 stimulus, is terminated at some clearly determined time, it is unlikely that there will be long-term consequences for inflation expectations. But large fiscal stimuli that will not be an exception but the norm in the post-COVID era could lead to more serious concerns about surge in inflation.
Furthermore, any rise in inflation in the U.S. can have international ramifications. For instance, it may dissuade European conservative leaders from adopting the fiscal stimulus to finance Europe’s recovery from the pandemic. And a big fiscal stimulus is perhaps even more important for Europe, where the economic impact of the pandemic has been worse and the recovery weaker than in the U.S.
Estimating the impact of the American Rescue Plan No magic formula can reveal precisely how much the American Rescue Plan fueled inflation, but the general consensus is that it was a contributor. Some economists estimate that it added two percentage points to the rate, some say it added up to four percentage points. Put another way, out of the 8.5% rate in March, the measure accounted for something between one quarter to one half of inflation.
The macroeconomic implications of Biden’s $1.9 trillion fiscal package
By late 2021, we would likely see the economy operating above its maximum sustainable level. That positive output gap would likely put upward pressure on inflation, which the Federal Reserve has said would be welcome. A risk worth noting is that the return of GDP back to its maximum sustainable level may create a difficult economic period after 2021. While our estimates show a “soft landing,” with a temporary and shallow decline in GDP after the fourth quarter of 2021, the slowdown could be more abrupt and painful than our projections suggest.
Arguments that the Biden administration's stimulus, particularly the $1.9 trillion American Rescue Plan of 2021, harmed the economy later in 2024 center on fueling high inflation, increasing the national debt, and necessitating high interest rates.
Critics argue this excess demand contributed significantly to the cost-of-living crisis. Others argue the stimulus caused long-term inflationary pressure.
Inflationary Impact: The stimulus is widely seen as having contributed to a surge in demand, which, combined with supply chain issues, caused inflation to rise significantly between 2021 and 2024. Persistent High Costs: While inflation cooled, the cumulative effect of price increases during this period left many Americans struggling with a higher cost of living in 2024. Interest Rates: To combat the inflation partially caused by this spending, the Federal Reserve raised interest rates, leading to higher mortgage and borrowing costs for consumers in 2024. Debt and Deficit: The high deficit spending, including the stimulus, is associated with a rising national debt, which can create long-term economic drag.
I'm just curious as to why people think programs that ended well before 2025 would be increasing the budget in 2025? The only program I know of that still had any financial impact on the 2025 budget was the continuing credits for Obamacare. I don't doubt that trump will still try to blame Biden for their own failures because that seems to be their go to move.
But people are so tired of hearing that excuse by now it's more like The Boy Who cried Wolf.
Intoducing for The Cleveland Browns, Quarterback Deshawn "The Predator" Watson. He will also be the one to choose your next head coach.
Policies that impact inflation aren't a light-switch. Current-day inflation is the result of policies rolled out years ago.
That's why the whole inflation argument is usually pretty dumb. The admin that has had to answer for inflation during their years is rarely the one that who enacted the policies responsible for the numbers.
"I'll take your word at face value. I have never met you but I assume you have a face..lol"
Inflation rose to 8% in 2022 during the pandemic. That type of inflation was on a global scale and not limited to the U.S.
Biden did not set "global" policies. In December of 2024 the inflation rate was 2.9%. That was the last full month Biden was president.
I'm not so sure why anyone would think that after Biden lowered the inflation rate from 8% in 2022 to 2.9% in December of 2024 that's it's still his fault that trump has barely managed to move the needle.
Intoducing for The Cleveland Browns, Quarterback Deshawn "The Predator" Watson. He will also be the one to choose your next head coach.
