Biden stimulus adds “further fuel to the fire” of expected inflation
Joe Biden’s $1.9tn coronavirus relief package is set to go through after receiving final support from the US House of Representatives on Wednesday.
The bill passed through the House by a narrow margin of 220 to 211 votes, with every Republican and only one Democrat opposing the proposal. Biden will now be able to sign the bill into law on Friday.
After weeks of process, the bill’s passing is a big step for the President who was elected with the mission to see the US out of the pandemic and into a more prosperous future.
In a statement from the White House moments after the vote, Biden said: “This legislation is about giving the backbone of this nation — the essential workers, the working people who built this country, the people who keep this country going — a fighting chance”.
The packaged includes direct payments of up to $1,400 for a significant number of American adults, unemployment benefits, $350bn worth of aid to local and state governments and an expansion of child tax credits.
“Right now markets are celebrating the additional stimulus and see it as a stronger bridge to a fully reopened economy,” said Jeff Buchbinder, equity strategist for LPL Financial.
However, Joshua Mahony, senior market analyst at IG, drew attention to a possible drawback of the President’s stimulus:
“While traders have been looking for this package as means to turbocharge the US economic recovery, there are plenty of questions over the impact it could have upon inflation,” Mahony said.
“Inflation expectations have already been soaring in the US, and the passing of this huge stimulus package adds further fuel to the fire. While Powell will try to soothe concerns that the Fed will need to tighten policy in the event of rising prices, the key questions is whether this package will accelerate the widespread expectations for a significant bounce in 2021 inflation levels.
