Now that President Biden’s $1.9 trillion COVID-19 relief package is signed into law, the White House is reportedly crafting its next priority, a $3 trillion infrastructure plan.
Biden’s big spending push adds to an already soaring national deficit. The latest COVID package is on top of more than $3 trillion in fiscal aid that garnered bipartisan support under President Trump, The deficit last year was $3.1 trillion, the largest in U.S. history, bringing the total national debt to about $28 trillion.
Former White House Chief of Staff Mick Mulvaney characterized the recent spending as "too much money chasing too few goods," arguing there needs to be a bigger focus on spending, debt, and inflation because inflation is "a real threat."
“I was surprised to hear there wasn’t more discussion about spending, debt and inflation,” Mulvaney told Yahoo Finance, referring to Federal Reserve Chair Jay Powell and Treasury Secretary Janet Yellen’s testimony in front of the House Financial Services Committee Tuesday. “We have a situation where we pumped an additional $6 trillion into the economy with various COVID bills and we have these reductions in supply… that's a formula for inflation.”
“The money is there. It is in the system and it’s sloshing around. We have never had more money than we have now in the economy," said Mulvaney, who also served as director of the Office of Management and Budget (OMB) during the Trump administration. "So when you have the combination of extra spending, most of it debt-fueled if not all of it, and fewer goods and services, you are going to get inflation by definition.”
Despite warnings from Mulvaney and other Republicans of overspending and overstimulating the economy through fiscal and monetary stimulus, Fed officials continue to downplay the risk of inflation. When asked whether the $1.9 trillion stimulus package could boost prices, Powell reiterated his view that any inflation pressure will be transient, adding it will be “neither particularly large nor persistent.”
Philadelphia Federal Reserve President Patrick Harker reiterated Powell’s view during an interview with Yahoo Finance last month, saying he doesn’t see inflationary pressures from the Fed’s recent actions, adding “we don't want to see inflation running out of control... at this point, I don't see signs of that.”
The Federal Open Market Committee's latest Summary of Economic Projections estimates inflation to reach 2.2% by the end of the year, compared to the previous estimate three months ago of inflation missing 2% until 2023.
Seana Smith anchors Yahoo Finance Live’s 3-5 p.m. ET program. Follow her on Twitter @SeanaNSmith