The Stimulus and Inflation
“The objective of a stimulus package is to reinvigorate the economy and prevent or reverse a recession by boosting employment and spending” (Hayes, 2021). Due to high unemployment levels and economic instability caused by COVID-19, the economy and the American people are vulnerable and in need of a boost to financially recover.
Although the stimulus provides aid to those in need and can help reboost the economy, Michael Burry, a popular investor depicted in “The Big Short”, argues that inflation caused by the stimulus will result in high prices. Market Watch wrote that “[Burry] tweeted over the weekend about his fear that prices will jump. Pointing to last week’s data on U.S. retail sales and purchasing managers indexes, he said the trillions more planning to be spent on stimulus will boost demand as employee and supply-chain costs skyrocket” (Goldstein, 2021).
The Treasury Secretary, Janet Yellen opposes this idea and argues that high prices won’t last. In a report she said that the movement of prices is temporary and "To get a sustained high inflation like we had in the 1970's, I absolutely don't expect that. We've had a very well anchored inflation expectations, and a Federal Reserve that's learned about how to manage inflation” (Wright, 2021).
Hayes, Adam. “Stimulus Package.” Investopedia, Investopedia, 30 Jan. 2021, www.investopedia.com/terms/s/stimulus-package.asp#:~:text=A%20stimulus%20package%20is%20a,by%20boosting%20employment%20and%20spending.
Goldstein, Steve. “'Big Short' Investor Michael Burry Warns Stimulus May Stoke Inflation.” MarketWatch, MarketWatch, 22 Feb. 2021, www.marketwatch.com/story/big-short-investor-michael-burry-warns-stimulus-may-stoke-inflation-11613998762.
Wright, Jasmine. “Prices Will Rise Because of Stimulus, but That Won't Last, Janet Yellen Says.” CNN, Cable News Network, 14 Mar. 2021, www.cnn.com/2021/03/14/investing/janet-yellen-inflation/index.html.