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Wall St: Stimulus Won’t Spark Runaway Inflation

The Capitalist

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Will the infusion of a $1.9 trillion stimulus program cause runaway inflation? If you ask President Joe Biden and the Democrats that the economy’s loss requires spending $2 trillion. Meanwhile, Republicans say that the economy can recover with smaller amounts. Flooding the markets with too much money can lead to runaway inflation. 

RELATED: House Dems Approve $2000 Stimulus Checks

Wall Street Sides With Democrats

Who’s right and who’s wrong depends on who you ask. Recently, Wall Street joined the debate. Investment banks did the numbers and concluded more money is better than less. They downplayed concerns about runaway inflation. With the Dems moving forward to get the relief package aid, financial firms aren’t raising any objectives. 

As big banks presented their own projections, they arrived at a consensus. The benefits of bigger spending will outweigh the risks. After years of weak inflation and a year of economic recovery mired in the mud, Wall Street is ready to welcome the infusion of stimulus money yet again. 

Bank of America: Profits, not Inflation 

As far as stocks go, investors have yet to worry about inflation caused by the stimulus. The stock market is sitting very pretty right now, and people are injecting money into stocks that will bounce back soon as the economy reopens. More people are too preoccupied with potential profits to worry about inflation. 

The market is “painting a story of optimism,” according to Bank of America US economics head Michelle Meyer. “Market participants are looking for stronger economic growth to push up inflation but not trigger Fed tightening too quickly. It is a difficult balance, but so far highly successful,” she noted. BofA predicts a GDP rate of 6% this year and 4.5% in 2022. This rate is just to lift the economy, and stimulus infusion can speed up the growth rate.  gross domestic product growth of 6% in 2021 and another 4.5% next year. This kind of expansion would fill the hole in the economy by the end of 2022, and additional stimulus would further accelerate growth, the economists said. The economy’s chances of overheating become a matter of how much. 

UBS: Gradual Rise of Inflation

UBS economists led by Alan Detmeister say the $1.9 trillion packages might be excessive, but it will get the job done. Compared to a scenario without any new stimulus aid, the inflation rate difference is half a point. Modest inflation can cause a gradual price growth in the first half of this year. UBS sees a growth rise of 1.8% in 2022 in core personal consumption expenditures and 1.9% in 2022. the following year, still trending below the central bank’s goal. 

UBS’s forecast doesn’t yet account for the currently proposed stimulus measure. However, they see the current package “poses a small upside risk” and probably won’t lead inflation to exceed 2% soon. If the economy rebounds as predicted, inflation can overshoot 2%, but only after 2023.

Goldman Sachs: Understated CBO calculations 

Goldman Sachs Economists led by Jan Hatzius looked at different measures. Instead of inflation expectations, they looked at the economy’s output gaps. The metric depends on the maximum potential GDP estimates sent out by the Congressional Budget Office. Goldman Sachs thinks that the estimates remain understated. The CBO’s view features endpoint bias, seeing short-term changes as a reversal of a long-term trend.” Both on the way down and on the way up, actual GDP was, therefore, a leading indicator for estimated potential GDP, indicative of endpoint bias,” the economists added.

Overall, Goldman projects the output gap to currently be more than twice the size of the CBO’s estimate. This means that they think that “inflation risk remains limited,” even with overachieving growth estimates. 

Deutsche Bank: Too Soon To Tell

Deutsche Bank’s Chief International Strategist Alan Ruskin issued a report Friday. With inflation usually slowing growth by up to two years, Ruskin wrote that inflation fears won’t reach a definite conclusion within the year. “A few soft US inflation numbers will not sound the all-clear. A few strong US inflation numbers will however elevate concerns. There is then some inherent asymmetric skew to how the markets will think about inflation risks going forward,” he wrote. 

In addition, Ruskin noted this is “an unusual moment in macrohistory” where “the ‘stars’ as they relate to inflation fears have aligned.” Economists from different disciplines seem to agree that more rather than less inflation risk is approaching. These include the strongest money supply in history, the strongest predicted growth in 70 years, and the closing of large negative output gaps. In addition, now is the time for very accommodating financial conditions.

Watch the Yahoo Finance video where senior columnist Rick Newman looks at the potential dangers of too much stimulus in the economy:

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Do you agree that the benefits of stimulus aid outweigh the risk, especially with inflation? Should the federal government approve and release the stimulus package now? Let us know what you think by sharing your thoughts below.

12 Comments

12 Comments

  • Avatar LeRoy Gorrell says:

    I think inflation will be put off by business having to lure back customers even with the fact of pent up demand. The need to raise prices will not seem as apparent with flow of money into the coffers that have been empty or low for a year already. Inflation later rather than sooner. Let’s us all get back on our feet and provide the aid to make that happen !! Turn things around by helping the poor rather than the rich and raise my taxes to put the country to work on the infrastructure that must adorned with action now rather than more & more & more TALK !!

  • Avatar Anonymous says:

    Agree!

  • Avatar Sandra Pittenturf says:

    I think Bidden is trying to buy his popularity. Let us start working again and keep America Rio Americans at least until things turn around.

  • Avatar Mark says:

    Of course it will be inflationary: printing money and raising income with no or little corresponding increase in productivity is inflationary. It’s basic economics.

  • Avatar Nate says:

    Especially, If The People Who Have Suffered The Most In Losses Don’t Get Any Relief Stimulus!!!!

  • Avatar Judy M Ritchey says:

    If Canada can help their country why can’t we help the richest country in the world.

  • Avatar Cathryn Johnston says:

    My question is–who will be paying for all of this? There is plenty of $$$$ left from the previous Stimulus package that hasn’t been spent, so why not use that $$$$ first. Remember, these people work for the USA & its citizens, not the other way around.

  • Avatar Peggy says:

    This stimulus package has money going out to other countries that are not for the covid 19 relief but for other purposes so no I am not for it for this reason, I am for it for Americans who have suffered with loosing jobs. I agree with Cathryn who is going to pay for this stimulus $? We are going to pay high taxes to pay for this money going to other countries for what?

  • Avatar William R Phillips says:

    Answer me why we are financially struggling and yet determined to send stimulus money over seas. The old saying that you can’t try take care of others if you can’t even take care of your own house might fit this situation. We have enough infrastructure in this country that is way past due for repair take care of ourselves first. Nobody else is going to do it for us, plus we shouldn’t want them to.

  • Avatar J says:

    I am not sure. But, I sure don’t trust wall street or these economists who will all probably benefit from it. There are those who need help. There are also those who will take the money and spend it on things that are not necessarily needed. Going further in debt to provide money for people to prop up the economy sounds ridiculous. Our politicians don’t have the ability to deal with individual problems, but instead lump together other crap that can somehow benefit them. Too many Americans think it is ok to live in debt in order to have what they want, and if something goes wrong someone should bail them out. This concept has obviously become a belief of our government to. Way too much arrogance in the belief that we are to big to fail.

  • Avatar Charles Rice says:

    O’Biden And The Fed Need To Stop Playing With The Lives Of The American People And Balls Up,Open Up Our Fucking Schools, And Close My State BOARDERS, And Keep The WETBACKS Out Of My Country And Send All The Illegal Trash Back To Their Own Fucking Country,All so Be A Fucking President And Get The Stimulus Checks Out To The People,And Stop Playing With Us,Also you Need To Just Stop Letting The So Called Big Tech And All The GDP,CBO,PSH(BITCHOCI,SCHUMER,HARRIS),Because They Know Nothing About What WE THE PEOPLE Truely Need,Because They Think That The 1.9$Trillion Is Coming Out Of Their Stolen Money,They Need To Piss Of And Send Out The Fucking Stems NOW So That WE THE PEOPLE Need To Get Back On Our Feet And Be Able To Pay Our Bills And Put Food On Our Table For Our Family,And The Economic Exploitation My Be What We Do Need,Again The Money Isn’t Being Payed Out Of Their Pockets,And If It Is To Fucking Bad,Because They Make$1Millon Or More A Year Is More Than What They Are Worth And That Enclodse O’Biden Thought He Makes 200k A Year He To Is Being Payed More Than He Deserves So Again Get Off Your Sorry Ass’s And Get The Stimulus Out To THE PEOPLE And PUBLIC And Any Of You That Doesn’t Like What I Say Or How I Say It Tough Shit,I Will Say What I Want,Because My Freedom Of Speech Is My Right That My Forefathers Gave To Us And I Will Stand Up For That Right.As Will As MY RIGHT TO BEAR ARMS IS MY RIGHT,So O’Biden Can Kiss My Ass As Well As The Rest Of The Anti Gun Fucks Out There!!!!!!

  • Avatar ROSS PECK says:

    DEFLATION IS THE PROBLEM, MORE THAN INFLATION! MONEY IN THE SYSTEM KEEPS PEOPLE WORKING, EXCEPT WHEN YOU PAY THEM MORE TO STAY HOME! THAT WHAT HAPPENING NOW?

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