Fears of higher US inflation and rates are exaggerated

Significance

Prominent economists disagree on whether this will fire inflation. The Federal Reserve (Fed) is for the moment prioritising economic growth and employment over price control. It sees inflation reaching 2.4% in 2021.

Impacts

• The bill funds schemes long desired by Democrats; child support and better medical coverage will raise personal incomes and productivity.
• Expectations of 10-year inflation suggest prices will not accelerate in the future, as markets bet that the Fed will maintain control.
• The scope for large-scale borrowing is narrowing; the next item on the government’s agenda, infrastructure, will require tax increases.
• Seven of the Fed’s 18 policymakers expect a rate hike by end-2023; their number may increase as second-quarter data are released.