San Francisco Federal Reserve Says Stimulus Package Contributed to Inflation

San Francisco Federal Reserve Says Stimulus Package Contributed to Inflation

( – In February 2021, Republicans warned Democrats that their partisan COVID-19 relief package would cause more harm than good to the US economy. They didn’t listen. The plan included a $1,400 direct payment to Americans, a boost to unemployment benefits, and created a one-year $300 per child monthly tax payment. Critics argued the legislation flooded households with badly targeted money and overheated the economy. It appears the San Francisco Federal Reserve agrees, saying the partisan plan played a role in today’s skyrocketing inflation.

Prices on everything are shooting through the roof and have been since spring. Inflation is eroding any stimulus money, unemployment benefits, or wage increases that one received over the last six months. Multiple issues are driving the complex problems, and the Federal Reserve study is only looking at one part of the problem, not the whole.

Stimulus Package Contributes to Inflation

An October 18 San Francisco Federal Reserve report said the American Rescue Plan contributed to the fast pace rise of inflation. It noted that the $2 trillion spending spree’s long-term outlook is modest. It stated that the Democratic policy was meaningful on price increases, but by 2023 it should be negligible.

So, how did the San Francisco Federal Reserve arrive at its conclusion? It evaluated a metric known as the vacancy-to-unemployment ratio. Traditionally, inflation will follow when the ratio is high as businesses must pay higher wages to attract workers. Currently, there are more jobs than people willing to fill them. As a result, the price of goods and services rise to pay for the increased capital expenditure.

Researchers said the American Rescue Plan could have a significant impact on the vacancy-to-unemployment ratio. It says America is close to the 1968 record, explaining that some of the inflationary pressures are temporary.

Report Doesn’t Suggest Inflation Is Temporary

A key distinction must be made here. The report doesn’t say that inflation is temporary. It says that the impact of the American Rescue Act on inflation may be temporary. Still, economists debate if that is accurate. In the last 18 months, Congress authorized over $5 trillion in total new spending to boost the economy through the pandemic. Many states, cities, and federal agencies have been slow to spend the money, meaning the impact of the stimulus plan could be ongoing for some time.

In addition, the Federal Reserve is pumping billions of dollars into the economy, energy prices are through the roof as America prepares for winter, gas prices are on the rise, the supply chain is broken and it could take a year or longer to resolve.

The Biden administration wants you to believe that inflation and supply shortages are an “extraordinary success.” They say that a strong economy with robust demand is driving inflation. That’s fuzzy thinking. The president wants you to thank him for empty grocery shelves and the privilege of driving your car or keeping your home warm this winter.

Moderate Senator Joe Manchin (D-WV) argues that Democrats shouldn’t pass another massive social and climate change reconciliation bill. Manchin partially blames the American Rescue Act for the current inflationary problem and suggests adding trillions more in government spending would add fuel to the fire.

Some economists suggest that inflation will last well beyond 2022. However, the problems we face result from the culmination of multiple factors, creating a nightmare situation.

Hold on to your wallets. Things could get worse before they get better.

You can thank Biden and the Democrats.

Don Purdum, Independent Political Analyst

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