Since the beginning of COVID-19 and the lockdown-induced recession, the United States economy has witnessed unprecedented levels of fiscal and monetary stimulus.
According to the Committee for a Responsible Federal Budget’s COVID Money Tracker, Congress has approved $5.92 trillion in COVID-related spending over the past eighteen months — and agencies have so far committed or disbursed $4.82 trillion.
Despite the unprecedented level of stimulus, President Biden signed a $1.2 infrastructure bill on Monday, and lawmakers are weighing a $1.75 trillion social spending package entitled the “Build Back Better Act.”
Members of the Biden administration have nevertheless argued that new spending will address the inflationary pressures felt by American households. During a Friday briefing, White House Press Secretary Jen Psaki said: “Economists across the board also agree that the president’s economic agenda — the Bipartisan Infrastructure Bill that he will sign on Monday and the Build Back Better Bill that we’re working to move forward — will not add to inflationary … pressure, and will ease inflationary pressure over the long term.”
Treasury Secretary Janet Yellen likewise pushed for the Build Back Better Act during a recent interview with Marketplace: “Well, I think the economy needs it, and the people need it. … It is really intended to address long-standing problems that have been holding this economy back.”
“You say this is not a short-run stimulus program. And I wonder if that’s the basis for your belief that this will not be inflationary in this economy?” asked host Kai Ryssdal. “Because as you know, inflation is a big deal right now.”
Yellen replied that inflation is “a consequence of recovery from a very severe shock due to the pandemic and something that will work itself out over time.”
Meanwhile, the Committee for a Responsible Federal Budget notes that the Federal Reserve has approved $6.84 trillion in monetary stimulus, with $3.82 trillion utilized so far — primarily on asset purchases meant to inject liquidity into the economy.
Earlier this month, however, the Federal Reserve’s Federal Open Market Committee stated that it would taper its monthly $120 billion in bond purchases.
“In light of the substantial further progress the economy has made toward the Committee’s goals since last December, the Committee decided to begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities,” said policymakers in a statement. “The Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook.”
In September, the Organization for Economic Cooperation and Development warned advanced economies to “remain vigilant” for signs of “persistent inflation.”
“Annual inflation has risen to over 5% in the United States but remains at relatively low rates in many other advanced economies, particularly in Europe and Asia,” explains the organization. “Part of the current rise in inflation reflects base effects, following price declines in the early phase of the pandemic.”
Since the time of the report, inflation in the United States has climbed to a 6.2% year-over-year pace.