Inflation may be on the way – but too much will cause problems

What we do know is that 2 per cent would be welcome, and 3 per cent acceptable. But 4 per cent and above would be tricky, writes Hamish McRae

Monday 18 January 2021 00:01
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<p>Joe Biden has laid out his financial rescue plan</p>

Joe Biden has laid out his financial rescue plan

Joe Biden’s American Rescue Plan is massive – and massively welcome. That is not a political judgement; it is an economic one.  

Look at the numbers. The fiscal injection is $1.9 trillion. The US economy, after the hit from Covid-19, will be about $20 trillion. So it is equivalent to 10 per cent of GDP. Add in the $935bn passed by Congress last month and you’re up to 15 per cent of GDP.

A boost on that scale should be enough to tide things over until the vaccine rollout – which is chaotic but is happening quite briskly – cuts the death toll and enables the economy to reopen fully. It is plausible that the US will lead the developed world out of this recession, as it did after the one that followed the financial crash of 2008.  

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