(p. A2) When Congress passed President Biden’s $1.9 trillion American Rescue Plan in early 2021, which included checks to households, enhanced jobless benefits and aid to state and local governments, inflation was around 2% and unemployment, though coming down, still above 6%.
At the time many forecasters thought the stimulus could push demand above the economy’s potential to supply goods and services and unemployment below its long-run natural rate of around 4%. Yet few thought this would meaningfully raise inflation. In previous decades unemployment had remained similarly low without raising price pressures.
A few disagreed, notably former Treasury Secretary Lawrence Summers and Blanchard. Both warned the stimulus was so large it would push the economy dangerously into overheating territory.
For the full commentary, see:
(Note: the online version of the commentary has the date May 23, 2023, and has the title “CAPITAL ACCOUNT; Why Inflation Erupted: Two Top Economists Have the Answer.”)
A 2021 article that documented Summers’s and Blanchard’s worry that Biden’s huge stimulus might fuel inflation is: