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The more I look at the numbers behind the 1.9 trillion Biden fiscal plan, the less I am concerned about the risk of "overheating" 1/n
The key observation is that direct checks only account for 25% of the plan 2/n
Large chunks, for example, about 20 percent, is to local and state governments. 3/n
This money helps local and state governments avoid laying off people due to the fiscal strain of covid. 4/n
It is thus preventing existing spending level from falling, rather than generating new spending that may lead to "overheating". 5/n
Other aspects, such as aid to the unemployd, accounting for about 20 percent, will presumably not be fully used in case of "overheating" as unemployment declines. 6/n
I will probably add more detail later, the numbers and details matter, but in summary I just don't see this risk as being material. 7/n
And in any event, upward pressure on inflation and interest rates would be a welcome feature -- not a flaw -- of this program. 8/n
The Fed could finally reach its inflatin target (!) and be able to lift off from the ZLB. 9/n
I think the other risk -- that this is to little -- is no less material. And unlike the risk of overheating, which if materialized can be met by raising rates, can't be met by further cuts. n/n
