A simple number crunching exercise suggests President Trump’s push for new $2,000 stimulus checks for households would quickly ignite a U.S. economy grappling with the ongoing COVID-19 pandemic.
Jefferies Chief Financial Economist Aneta Markowska says stimulus checks of $2,000 — as opposed to the $600 approved by Congress and signed by Trump over the weekend — would add nearly 1% to her 2021 GDP forecast. GDP would be close to 6% growth next year under the more optimistic stimulus check scenario as consumers spend at a greater clip, Markowska notes.
What’s more, the fatter direct payments would “accelerate” the healing in the labor market and shorten the distance to full employment and the Fed’s 2% inflation goal by two to three quarters. The size of the plan, should Congress sign off on the $2,000 checks, would rise to $1.2 trillion from $900 billion, Markowska estimates.
Trump inched closer to his demands on the stimulus front on Monday.
The Democrat-controlled House approved giving Americans dealing with the pandemic the $2,000 stimulus checks. The bill passed in a solid 275-134 vote on Monday.
But the bill could easily die in the Senate, where it heads next. Republican lawmakers have been loath to give households larger checks amid fear any spending wouldn’t be sustainable. Moreover, Republicans continue to voice concern over increased government spending and what it means to the country’s yawning debt position.
Even some Democrats are voicing concern on any increased direct payments.
Former U.S. Treasury Secretary Larry Summers said on Bloomberg Friday that $2,000 stimulus checks for U.S. households is a “pretty serious mistake.” Summers views handing out checks to households right now as an unsustainable practice.
Even without the added money, the stimulus plan as passed could jump start the ailing economy.
On Monday, Goldman’s Chief Economist Jan Hatzius lifted his first quarter U.S. GDP forecast to 5% from 3% in large part from the effects of new stimulus checks to U.S. households. Hatzius left his expectation for sequentially improved GDP from the second quarter through the fourth quarter unchanged. For the full year, Goldman now sees GDP growth of 5.8% versus 5.3% previously. Jefferies’ Markowska is modeling for 2021 GDP growth of 5%.
“While the income effects of the fiscal package will be very front-loaded, we expect the impact on consumer spending to be more evenly distributed throughout the year. The virus resurgence and continued state and local restrictions will likely weigh on spending in the short term, leading to more pent-up demand later in the year following mass vaccination,” Hatzius explains.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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