WASHINGTON—Economic activity will pick up as the pandemic recedes and Americans are vaccinated against Covid-19, but the recovery will be gradual rather than sudden, a top economic adviser to President Biden said Wednesday.
“It is a dimmer switch, not an on-off switch,” Jared Bernstein, a member of the White House Council of Economic Advisers, said at a Wall Street Journal Executive Membership Series event. “People are not going to snap back into action on some set date because the vaccine penetration rate hits 53% or whatever. It’s going to be more gradual.”
Mr. Bernstein defended the president’s $1.9 trillion stimulus plan against critics who say it risks overheating the economy and generating inflation. He acknowledged that rising inflation is a potential risk, but that a weak recovery that leads to scarring for households and businesses—such as long-term unemployment, foreclosures and bankruptcies—would do more harm.
“There is room for more heat,” he said, pointing to data on weekly claims for unemployment benefits, which came to 861,000 in the most recent report, and elevated jobless rates in minority communities as evidence of spare capacity in the economy.
Mr. Bernstein pointed to comments from Federal Reserve Chairman Jerome Powell, who said Tuesday that he doesn’t expect a temporary burst of federal spending to cause a large or persistent rise in inflation.
Forecasters surveyed by the Journal have lifted their expectations for 2021 economic growth in recent weeks. Economists on average expect gross domestic product to expand 4.9%, measured from the fourth quarter of the prior year, as more widespread vaccine distribution and additional fiscal support from Washington boosts activity.
Yields on long-term government securities have risen in anticipation of faster economic growth and rising inflation expectations. The yield on the benchmark 10-year Treasury note, which moves inversely to its price, has risen to its highest level in a year this week. Earlier on Wednesday, it rose above 1.42%, but lately was at 1.393%, from 1.363% Tuesday.
Some critics have said that the $1,400 stimulus checks in Mr. Biden’s aid bill are poorly targeted and may go to households that don’t need them. But Mr. Bernstein said the checks will provide families with a cash cushion to ride out the pandemic until vaccines are widely distributed and Americans are comfortable resuming normal activities.
“The idea that you can provide families with a bit of a cushion in terms of savings is actually very much a feature, not a bug,” Mr. Bernstein said. He added that those payments will also help families that have fallen behind on mortgage and rent payments.
In previous recessions, payments to households were designed to increase demand by inducing consumers to spend more. This time, the administration sees them as a way to provide aid for people who might not be eligible for targeted relief, such as the enhanced unemployment benefits that the aid bill would extend.
After the pandemic is under control and the recovery well under way, Mr. Bernstein said the administration will shift its focus to strengthening the economy over the long run, through investments in child care, education, clean energy and infrastructure.
The administration’s climate initiatives, he said, aren’t working against private businesses but in the same direction, adding to what companies such as General Motors Co. are already doing with its shift toward electric vehicles.
Write to Kate Davidson at [email protected] and Richard Rubin at [email protected]
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
