Federal Reserve Chairman Jerome Powell claimed Wednesday during a panel at the ECB Forum on Central Banking in Sintra, Portugal, that massive government spending did not drive increased inflation.
“You identified those bills, and I think you are seeing some of that money showing up in construction, construction numbers, it’s supporting construction activities, particularly the infrastructure bill, … if you look at where the inflation is in the economy, I wouldn’t say that that’s an important driver of inflation or something that we — that we think about or consider,” Powell told CNBC “Squawk on the Street” co-host Sara Eisen during the panel.
Eisen earlier mentioned the American Rescue Plan, the Inflation Reduction Act, the CHIPs Act and the infrastructure bill passed into law during the first two years of the Biden administration. (RELATED: ‘What Has He Delivered?’: Steve Forbes Lambasts Biden’s Presidency, Says It Brought ‘No Faith’ To American Public)
Multiple experts said that the massive government spending could cause inflation as President Joe Biden pushed for the American Rescue Plan. The legislation, which Biden signed into law in March 2021 and totaled $1.9 trillion, included $350 billion in funds for state and local governments, $160 billion for healthcare related to COVID-19, stimulus checks and $86 billion for various unions.
Lawrence H. Summers, who served as Secretary of the Treasury in the Clinton administration and as an economic advisor to former President Barack Obama, warned in a February 2021 op-ed in The Washington Post about potential inflation due to the amount of money being spent. Former Obama administration official Steve Rattner also warned about the risk of inflation in a March 2021 op-ed in The New York Times.
“I spent an early part of my career as a reporter at The New York Times, chronicling the rampant inflation that scarred the economy in the 1970s and the Federal Reserve’s struggle to contain it,” Rattner wrote. “So far, the wary eye that I have kept on prices for four decades has been unnecessary. But now, with Congress poised to approve an additional $1.9 trillion in spending through the American Rescue Plan Act, I’m worrying again.”
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