Economists Alarmed Biden’s $1.9 Trillion Bill May Overheat the Economy

Two leading economists said President Joe Biden’s $1.9 trillion stimulus bill could overheat the economy, drive up prices, and force the Federal Reserve to respond by increasing the interest rate.

Oliver Blanchard, former chief economist of the International Monetary Fund, said in series of tweets on Saturday: “Much too much is both possible and harmful. I think this package is too much,” he said. “It would take the unemployment rate very close to zero. This would not be overheating; it would be starting a fire.”

Blanchard said Biden’s proposal of $1.9 trillion added to $800 Billion that Americans may be expected to spend out of their savings in 2020, plus $900 billion from the Trump Administration’s CARES Act last December, accumulate to $3.6 trillion. This is 4 times his predicted $900 billion growth of the American economy in 2021.

Blanchard said even if he made a conservative assumption, the demand would go 14 percent more than usual, and unemployment would go down close to zero.

He said inflation would go much higher than the predicted 2.5 percent, and the Federal Reserve would have to respond by raising the interest rate.

Lawrence Summers, former U.S. Treasury Secretary, speaks during an event at the London School of Economics, in London, March 25, 2013. (Jason Alden/WPA Pool/Getty Images)

Larry Summers said Thursday in an op-ed in Washington Post that Joe Biden’s pandemic relief proposal is so big that it may risk triggering inflation and “much of the policy discussion has not fully reckoned with the magnitude of what is being debated.”

But Biden’s economic adviser Jared Bernstein fired back on Summers’ article and said on Thursday, “Janet Yellen is our Treasury secretary, OK? She knows a little something about inflationary risks.”

Blanchard admitted that he could be wrong but very unlikely. The government needs to save people from poverty and respond to the pandemic, but he wrote, “I think we do not need to spend 1.9 trillion for that, and we should have a smaller program.”