Yesterday, U.S. President Joe Biden signed an executive order called the 'American Rescue Plan', effectively turning this $1.9 trillion fiscal proposal into law. The package is intended to help struggling American families cope with the coronavirus fallout.
The long-awaited fiscal intervention by the U.S. Government will complement FED's accommodative monetary policy stance in a bid to fast-track the rate of economic recovery. Some experts anticipate a significant upsurge in consumer spending to be registered as soon as April.
Before I took office, I promised you that help was on the way. Today, I signed the American Rescue Plan into law, and can officially say: help is here. pic.twitter.com/uuEZAkGloz— President Biden (@POTUS) March 11, 2021
While the stimulus package would prove invaluable at the individual level, helping families recuperate via direct payments of up to $1400 to citizens earning $75 000 a year or less, the deal comes at a precarious time for the U.S. economy. Prices are already rising at a solid pace, and it is feared that another financial boost at the present moment could overheat this process, running the risk of inducing hyperinflation.
Meanwhile, the rescue plan would also reflect on government spending, which will undoubtedly jump in Q2 after it was reduced over the previous couple of quarters.
The fiscal support may be arriving late for an economy that has so far been sustained by FED's exceptional forward guidance, which has carried the brunt of the coronavirus fallout since the initial crash in March of 2020. It will now be the job of Jerome Powell and his colleagues to monitor the rate of price growth, especially carefully, in order to prevent inflation from getting out of hand.
So far, the American Rescue Plan has mostly helped the stock market, which was reeling as of late due to rising U.S. yields. The massive fiscal deal bolstered investors' sentiment, as the secondary market is once again betting on the possible continuation of the stock rally.