President-elect Joe Biden Introduces His "American Rescue Plan"
Jacob Hess
January 14, 2021
Just about a month after the second relief bill was passed, President-elect Joe Biden released the details of the next round of stimulus for COVID-19 relief. This plan is quoted at the steep price tag of $1.9 trillion and is titled the American Rescue Plan. Biden will look to pass the plan in the form of two bills with the first being a more immediate solution to the economic anxieties caused by the pandemic and the second being a bill to attack longer-term goals of “creating jobs, reforming infrastructure, combating climate change and advancing racial equity.” Here is what’s on his wish list:
- Direct payments of $1,400 to Americans (to get to $2,000 in direct payments including the December $600 payment).
- Federal unemployment benefit to $400 a week and extending through Sept.
- Extending restrictions on evictions and foreclosures through Sept.
- $350 billion in state and local government aid.
- $170 billion to K-12 schools and higher education.
- $50 billion to COVID-19 testing efforts.
- $20 billion to a national vaccine program.
- Federal minimum wage at $15 an hour.
- Child Tax Credit fully refundable for the year and increasing the credit to $3,000 per child ($3,600 for children under 6).
The plan builds on several sources of aid that were established in previous relief bills. Direct payments of $600 paid in December will be boosted by $1,400. The eviction moratorium extension of January 31st in December is extended further to September 31st. There is also additional funding provided for vaccine distribution and education. Including similar items that have already garnered bipartisan support may make it easier to get the opposing party on board.
The plan comes in the same day as a Jerome Powell talk on inflation with Princeton University. His warning was no longer that inflation would trail the target of 2% set by the Federal Reserve but that investors should brace for inflation to rise above it. He said, “The real question is, how large is that effect [post-pandemic rise in prices] is going to be and will it be persistent … clearly a one-time increase in prices is very unlikely to meet persistently high inflation.” Chair Powell has consistently called for additional fiscal stimulus and remained steadfast in his commitment to keeping interest rates low. He has made it clear that he and the Federal Reserve believe that this is the best way out of a sluggish COVID-19 economy.
If everything passes, the M2 Money Stock is likely to make another jump higher like it did in early 2020 as likely crossing the $20 trillion mark in 2021. The stimulus will do good to get consumers the cash that they need, but whether they will spend it is another question. The optimistic news is the first stimulus package led to a strong rebound in retail sales. In April 2020, retail sales fell -15.3% YoY to its trough but quickly rebounded to up 5.7% YoY in June 2020 and even reached to a strong 9.0% in September 2020. Business investment, however, was a bit slower to recover. The latest figures in gross private domestic investment show a -5.8% YoY decline in 2020 Q3, far from pre-pandemic levels.
Truthfully, Biden’s newest relief plan is about more than just infusing capital in the economy. His plan is about hope and marking the end of an economically anxious period. The end of the economic uncertainty will not only encourage more consumption (although consumers do not seem to need more encouragement) but should also stoke the flames of business investment as confidence will be accommodated by loose monetary policy and Chair Powell’s willingness to let inflation run higher than usual for a brief period. That formula for growth suggests the economy is full steam ahead in 2021.
© MTS Insights 2023