Skeptics Warn Spending Too Much Could Trigger Latent Inflation

FINANCE. Economists argue that inflation should be watched. | Reference photo: Pixabay.

As the COVID-19 vaccination opens up a possible scenario of a return to normal life, the United States moves into an unusual experience that could produce an economy that many Americans will not recognize, for better or for worse.

Factories are kicking in and consumers are spending again, signs that the United States could emerge from the current health crisis with its fastest growth in decades. Goldman Sachs expects the economy to expand this year at an annual rate of 7%, the fastest pace since President Ronald Reagan’s proclamation in 1984.

The question is whether that accelerated rebound can be made durable, freeing the country from the low growth that has prevailed for most of the past 20 years, or whether it will instead fuel a kind of inflation that has not been seen. since 1970.

Leading economists such as former Treasury Secretary Larry Summers already warn that a possible “overheating” could end in a new recession.

After 20 years of low growth, the odds are against a prolonged boom. But the pandemic has catalyzed new thinking about fiscal and monetary policy, creating the most favorable conditions for restoring vigorous economic growth for decades.

“In terms of history, this is a unique situation,” said Chetan Ahya, chief economist at Morgan Stanley, who recently advised clients to prepare for a fast-growing, “high-pressure economy,” until at least the end of 2022.

Joe Biden’s administration plans to spend $ 1.9 trillion to support growth; on top of the $ 3.7 trillion in federal funding that has flowed since March, helping to guarantee years of massive government loans to stimulate the economy.

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At the same time, the Federal Reserve says it will keep interest rates close to zero even if inflation slides above the central bank’s annual target of 2%, making it easier for businesses and consumers to borrow.

For 75 years, the economy had been boosted simultaneously by both deficit spending and easy money. The economy will enjoy additional support this year from consumers, who have more than $ 1.6 trillion in excess savings, thanks in part to last year’s stimulus controls, according to Bank of America.

As President Biden seeks congressional approval for new relief, he plans other measures to boost the economy’s long-term prospects. Administration officials are crafting an ambitious spending package that would provide up to $ 3 trillion for a variety of Democratic priorities, including infrastructure, clean energy, domestic manufacturing, and child and elderly care.

The American economy, most experts say, needs a boost to recreate the kind of growth that made Americans so prosperous in the last half of the 20th century. In the past 20 years, by contrast, the United States grew at an average annual rate of just 1.9%, well below the 3.5% recorded between 1980 and 2000.

For: David J. Lynch/The Washington Post.

Free translation from English by El Tiempo Latino.

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