Home Business US $1.9 trillion in stimulus package… Save the economy or call inflation

US $1.9 trillion in stimulus package… Save the economy or call inflation

by news dir

The US Senate passed the stimulus bill on the 6th with 50 votes in favor and 49 votes against. [로이터=연합뉴스]

An ultra-large economic stimulus package of $1.9 trillion (about 2140 trillion won), promoted by the Joe Biden administration of the United States, is approaching. Financial market investors’ calculations have become complicated. A large-scale economic stimulus plan is an urgent prescription that gives power to the economy as a whole, but it is difficult to avoid a rise in market interest rates caused by the issuance of deficit government bonds. If the bill passed the Senate on the 6th passes the House of Representatives on the 9th, it will take effect through the signature of President Biden.

Biden’s’Relief Plan’ Passes the Senate
House vote on the 9th, more likely to vote

Selective payment of $1,400 per adult
Issuance of government bonds is inevitable, interest rates and prices fluctuate

This economic stimulus plan includes: ▶Selective payment of $1,400 per person (disaster support fund) according to income criteria ▶Additional payment of $300 per week of unemployment benefit until September ▶Expansion of vaccine support for novel coronavirus infection (Corona 19), etc. US Treasury Secretary Janet Yellen said, “In the pandemic, inflation concerns are a small part compared to economic losses.”

Some people in the financial sector expect that cash of $1,400 per person can raise the stock price. According to Bloomberg News, Deutsche Bank predicts that 37% of disaster aid, or $170 billion, could flow into the stock market. On the other hand, in the bond market, some are concerned that the rise in government bond yields could steepen. The rise in bond yields is a negative factor for the stock market.

The US 10-year Treasury bond rate, which was less than 1% per year since the outbreak of Corona 19, exceeded 1% at the end of January. On the 5th, it soared to 1.61% per year during the intraday. Large-scale stimulus measures ▶The increase in issuance of new government bonds and the increase in inflation pressure could serve as factors that raise the yield of government bonds.

Michael Aaron, senior investment strategist at Instate Street Global Advisors, a US investment advisory firm, said, “Even if the interest rate and inflation of government bonds rise together, it is okay if the market can handle it. The problem is when interest rates rise far outstrip inflation.”

The US Treasury Department will issue a 10-year Treasury bond worth $38 billion through a bid on the 10th. On the 11th, a bid for 30-year government bonds worth 24 billion dollars will be implemented. It can serve as an opportunity to gauge the mood of bond market investors over US Treasury yields.

The US central bank, the Federal Reserve System (Fed), is unlikely to pick up a rate hike card right away. Fed Chairman Jerome Powell said on the 4th, “There is still a long way to go to achieve the inflation target of 2% on average.” The US CNBC broadcast said, “The Fed is discussing whether to introduce’Operation Twist’.” The Fed intervenes in the bond market to sell short-term bonds and buy long-term government bonds. In this way, the rise in long-term government bond yields can be suppressed, but the Fed is worried that it is difficult to avoid rising short-term bond yields.

Reporter Seungho Lee [email protected]

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