Biden stimulus package: there is no free lunch !

23rd March 2021
-News, IAM

Hugues Chevalier, Economist

President Biden signed his colossal $ 1.9 trillion stimulus package last Friday. The law, which plans to spend 8.5% of GDP, had already been passed by the House of Representatives on March 10. The Biden plan includes, among other things, sending a check of $ 1,400 to every American earning less than $ 75,000 a year. In addition, it extends federal unemployment benefit of $ 300 per week until September. Finally, it will financially support vaccination programs, social and educational assistance, in particular the reopening of schools in the poorest states. This plan is obviously essential for household income in a country where partial unemployment in non-existent and where 9 million workers could not return to their pre-crisis jobs. Critics say, it could overheat the economy, which is already rebounding quickly. Indeed, according to the March forecasts of the OECD, US GDP growth could reach 5.6% this year, up 1.4 point compared to those of December 2020. The better-than-expected situation is due to the rapid campaign of vaccination which has permitted to lift health restrictions. Indeed, 100 million Americans have already received their first jab, almost a third of the population. The possibility of an overheating economy could lead to widening external deficits and a possible resurgence of inflation, which would push up interest rates. And this plan, already colossal, should be followed by another plan of 2000 billion dollars over four years which will focus on ecological transition and infrastructure.

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