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Is the American Rescue Plan Taking Us Back to the ’60s?

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Abstract

The American Rescue Plan provided fiscal support during a strong economic rebound, raising concerns about the risk of fueling inflation. One way to assess this risk of economic overheating uses the ratio of job vacancies to unemployment, which measures labor market slack more accurately and, hence, can predict future inflation better than the unemployment rate alone. Estimates suggest that the fiscal plan acts to temporarily raise the vacancy-to- unemployment ratio, in turn pushing up inflation by about 0.3 percentage point per year through 2022.

Suggested Citation

  • Régis Barnichon & Luiz E. Oliveira & Adam Hale Shapiro, 2021. "Is the American Rescue Plan Taking Us Back to the ’60s?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2021(27), pages 1-06, October.
    • Handle: RePEc:fip:fedfel:93178
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    1. Valerie A. Ramey & Sarah Zubairy, 2018. "Government Spending Multipliers in Good Times and in Bad: Evidence from US Historical Data," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 850-901.
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    Cited by:

    1. Groiss, Martin & Sondermann, David, 2023. "Help wanted: the drivers and implications of labour shortages," Working Paper Series 2863, European Central Bank.
    2. Reuven Glick & Sylvain Leduc & Mollie Pepper, 2022. "Will Workers Demand Cost-of-Living Adjustments?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2022(21), pages 1-6, August.
    3. Laurence M. Ball & Daniel Leigh & Prachi Mishra, 2022. "Understanding U.S. Inflation During the COVID Era," NBER Working Papers 30613, National Bureau of Economic Research, Inc.
    4. Adam Hale Shapiro, 2022. "How Much Do Supply and Demand Drive Inflation?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2022(15), pages 1-06, June.
    5. Augustus Kmetz & Adam Hale Shapiro & Daniel J. Wilson, 2022. "Can the News Drive Inflation Expectations?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2022(31), pages 1-6, November.
    6. Régis Barnichon & Adam Hale Shapiro, 2022. "What’s the Best Measure of Economic Slack?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2022(04), pages 1-05, February.

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