They’re trying to do so gingerly, aiming for a “ soft landing.” But if demand and investment end up plummeting in response, the US could face a painful recession. The Federal Reserve has started raising interest rates in an effort to cool down the economy.
The second problem is, if inflation remains so persistent, what reining it in could entail. The first is already evident: Because most Americans’ wages haven’t risen enough to keep up with it, real (inflation-adjusted) wages have been declining at the highest rate in four decades. Inflation has brought with it two big problems. “I think we can say with certainty that we would have less inflation and fewer problems that we need to solve right now if the American Rescue Plan had been optimally sized,” said Wendy Edelberg, a senior fellow in economic studies at the Brookings Institution. And “core inflation,” which excludes volatile energy and food prices, rose 0.6 percent in just one month.Ĭountries around the world are struggling with inflation due to pandemic disruptions, but the Biden stimulus made the US’s inflation problem more severe, to at least some extent. New Consumer Price Index numbers released Wednesday showed prices up 8.3 percent compared to one year before. Some economists argue, though, that all this came at the cost of making inflation worse. The massive spending law, which included $1,400 checks for each person in a family, generous expansions to unemployment insurance and child tax credit benefits, and hundreds of billions in aid to state and local governments, was intended to help people in need and stimulate economic demand, and it did. With President Joe Biden’s legislative agenda stalled in Congress, the American Rescue Plan - the $1.9 trillion stimulus bill Democrats passed in March 2021 - may stand as his biggest achievement.īut did it contribute to the country’s current inflationary mess?
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