Biden’s American Rescue Plan made inflation worse but economy better
Government cash boosted demand when economy was struggling to produce, experts say
Though some experts — even in his own party — warned that the new spending could cause the economy to overheat, administration officials saw little reason for concern. Just one day earlier, the Labor Department had put annual inflation at a tame 1.7 percent.
Yet even as the president beamed, forces were stirring that would put the rescue plan at the center of a debate over whether he had blundered with his free-spending recipe for recovery, souring Americans on his stewardship of the economy and allowing Republicans to capitalize on the rising cost of living.
The political and economic consequences of Biden’s first landmark law will be debated for years. But 18 months later, there is a consensus that the rescue plan was a double-edged sword: Bathing the economy in cash spurred the fastest recovery of any Group of 7 nation, even as the indiscriminate nature of that spending helped ignite the biggest jump in consumer prices in 40 years.
While experts disagree about the extent of the rescue plan’s contribution to inflation, it seems clear that its role has been larger than the Biden administration concedes while falling short of the calamity that Republicans claim.
Within days of the March 2021 White House event, as the plan’s $1,400 stimulus checks landed in Americans’ bank accounts, prices for items such as used cars and airline and sports tickets began to rise. Today, annual inflation stands at 8.3 percent, near its highest mark in 40 years.
Even without the rescue plan, the United States would have experienced significant inflation because of the unprecedented dislocation brought on by the coronavirus. As economies around the world last year eased their pandemic restrictions, a surge of consumer spending collided with chronic supply problems to boost prices almost everywhere. Outbreaks of coronavirus variants and Russia’s invasion of Ukraine further aggravated tight markets.
But many economists have concluded that the rescue plan made U.S. inflation worse.
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