Biden’s stimulus will cause additional problems for Fed and inflation: Federated Hermes' Orlando
President Joe Biden’s administration is cautious about projecting the growth returns that the economy will enjoy over the next several years as a result of his spending plans, according to the New York Times.
The White House budget proposal due to be released Friday predicts the economy would grow at an annual pace of just under two per cent for much of the next decade, the Times reported, citing documents it obtained.
That is broadly in line with what economists, including those at the Federal Reserve, reckon to be the sustainable growth rate for the U.S. economy -- without adding much of a growth premium from Biden’s proposals to spend some US$4 trillion on infrastructure and social safety nets.
It’s also a departure from the budgets of President Donald Trump, which predicted growth rates of three per cent a year that exceeded what the majority of economists thought was possible.
The Biden budget also projects that unemployment will fall two percentage points to 4.1 per cent by next year and stay below four per cent in following years, according to the New York Times.
The White House economists don’t expect the current spike in inflation to last. They predict that the annual rate, which jumped above four per cent in April, the highest since 2009 -- won’t exceed 2.3 per cent a year over the coming decade. As a result, the White House expects the Federal Reserve to raise interest rates “gradually” in coming years.