The $1.9 trillion American Rescue Plan enacted in March, as well as a $900 billion pandemic aid package passed in December, are heavily front-loaded. They were set up to get money out the door fast.
But one consequence of that strategy is that fiscal policy in the quarters ahead will subtract from economic growth.
Financial experts mostly project that the economy, with strong momentum in the labor market and huge pools of pent-up savings by households, will be strong enough to keep growing despite the fading of the fiscal boost. To avoid an economic downturn, a huge handoff must occur from government-driven demand to the private sector.
There is no modern precedent for such huge swings in sums the government is pumping into the economy. And there is a risk — recently acknowledged by a top Federal Reserve official — that if pandemic-era savings are disproportionately held by the affluent, they will sit on that cash rather than spend it.
Most Americans eligible for stimulus checks of a combined $2,000 per person have already gotten them. The Treasury Department said this month that $395 billion of that cash is now shipped.
While unemployment insurance payments remain elevated, that spending is also tapering as people return to work — and supplements to those payments are scheduled to expire in September. Much of the other spending was either near-term, focused on things like vaccine rollout; or will be spent very gradually, such as on an expanded child tax credit and grants to state and local governments.
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