While the Biden administration’s ambitious effort to salve the pandemic’s deep economic wounds made its way through Congress, proponents insisted that funneling $1.9 trillion to American households and businesses wouldn’t unshackle a long-vanquished monster: inflation.
Officials at the Federal Reserve, responsible for balancing the job needs of Americans with price pressures that could erode their buying power, have said there is little cause for worry.
Yet as the legislation moved toward the finish line, inflation prospects increasingly influenced political commentary and Wall Street trading.
The worries reflect expectations of a rapid economic expansion as businesses reopen and the pandemic recedes. Millions are still unemployed, and layoffs remain high. But for workers with secure jobs, higher spending seems almost certain in the months ahead as vaccinations prompt Americans to get out and about, deploying savings built up over the last year.
said in an interview with Bloomberg Television last week.
In addition to the $1.9 trillion about to pour forth, Mr. Dimon said, $1 trillion in savings that piled up during the pandemic remain unspent.
The inflation fixation has been one driver behind a sharp sell-off in government bonds since the start of the year, pairing with a stronger growth outlook to push yields on 10-year notes up to about 1.5 percent, from below 1 percent. Bonds, like stocks, tend to lose value when inflation expectations grow, eroding asset values.
“I would not buy 10-year Treasurys,” Mr. Dimon said.
The volatile bond trading prompted several unnerving days on Wall Street last week. High-flying tech stocks — previously seen as a haven for those chasing market-beating yields — were particularly upended, though broad share indexes remain near record highs.
“I would suspect there’s a pretty good chance you’re going to see rates going up,” Mr. Dimon said. “And people are starting to worry about that.”
Mr. Powell said this month, making it clear that he expected the coming increase to be transitory.
The Fed earned an inflation-fighting reputation in the 1970s and 1980s, when it eventually contained runaway prices with double-digit interest rates that caused a recession. But price gains have been slow for decades, and Mr. Powell and his colleagues have been working to ensure that consumers and businesses don’t start to expect ever-lower inflation.
Healthy economies tend to have gentle price increases, which give businesses room to raise wages and leave the central bank with more room to cut interest rates during times of trouble. If inflation drops too low, it risks price declines that are especially painful for debtors, whose debts stay the same even as prices and wages fall.
Fed officials revised their framework for setting monetary policy last summer, saying that instead of shooting exactly for 2 percent inflation, they would aim for 2 percent on average — welcoming inflation that runs faster some of the time.
Inflation is expected to increase in the coming months as prices are measured against weak readings from last year. Analysts surveyed by Bloomberg expect the Consumer Price Index to hit an annual rate of 2.9 percent from April through June, easing to 2.5 percent in the three months after that before easing gradually to year-over-year gains of 2.2 percent in 2022, based on the median projection.