Funding for the $300 bonus unemployment checks in the US will end today.
The payments were funded by a $900 billion rescue package signed by former president Donald Trump last December. However, President Joe Biden’s $1.9 trillion American Rescue Plan will extend the unemployment payments until September 6. Despite a lack of support from any Republican lawmakers in the House and Senate, the stimulus package was approved by Congress and signed by Biden on March 11.
The stimulus package is expected to boost economic activity and help the US return to pre-pandemic growth projection by the end of 2021. However, inflation is also expected to increase. With speculations of higher inflation rates, interest rates are likely to increase. Rising rates will likely lead to large capital outflows in emerging markets, and these governments may face difficulties in financing high public debt without foreign funding.
Most economists agree that any spike in inflation may bring inflation rates above the Federal Reserve’s 2% target level in the short-term. In the long-run, inflation levels are likely to return to the 2% target level without further action from the Federal Reserve, indicating that the inflation spikes from the stimulus package are not destabilising.
An analyst on the Current Developments Team, Manisha focuses on Korean Peninsula and East/Southeast Asian politics. She contributes regularly to the Daily Brief.