Skip to main content

How much stimulus is too much?

Much of the recent discussion on whether the proposed $1.9trn fiscal stimulus, equivalent to nearly 9% of GDP, could be too big when the output gap is closer to 3%, has glossed over the fact that the remaining shortfall in output is concentrated in the sectors most affected by the containment measures put in place to tackle the pandemic. The problem is deficient supply rather than demand. Once widespread vaccinations allow those restrictions to be lifted, however, this massive fiscal stimulus, which comes at a time when the Fed is resolute in its opposition to tightening monetary policy until it has achieved a “broad and inclusive” labour market recovery, will add to the lengthening list of factors that point to inflation surprising on the upside.

Become a member to read more

This is premium content that requires an active Capital Economics subscription to view.

Already a member?

You may already have access to this premium content as part of a paid subscription.

Sign in to read the content in full or get details of how you can access it

Register for free

Sign up for a free account to gain:

  • Unlock additional content
  • Register for Capital Economics events
  • Receive email updates and economist-curated newsletters
  • Request a free trial of our services

Get access