We are getting to the light at the end of the tunnel, but it is going to take longer. Part of the problem is that the United States participates in the global economy. Specifically, Europe’s coronavirus recovery is far behind us. Their tardiness will impair our recovery.

Both the Federal Reserve and the Biden administration are committed to implementing policies that will help our economy continue improving.

Before a Senate Banking Committee, Federal Reserve Chairman Jerome Powell reaffirmed that the central bank will maintain easy-money policies until the economy has recovered further.

To keep interest rates near zero, the Fed will make large-scale purchases. Michelle Meyer, head of U.S. economics at Bank of America, said, “I think Powell was trying to make a very clear case that the Fed is committed to achieving a complete recovery. When you look at some of the recent economic data, the Fed is certainly not ready to pivot on its policy stance.”

There has been significant progress from a year ago in retail sales, industrial production, service activity and housing prices. The Conference Board reported last week that Americans have grown more upbeat about current business and labor market conditions. Oil prices are now close to $63 per barrel, and copper is more expensive than it has been in almost 10 years.

However, we have about 10 million fewer payroll jobs than in February 2020. Inflation remains below the Fed’s 2% goal.

The Biden administration’s American Rescue Plan has advocated a $1.9 trillion stimulus program. The following are key features:

  • More aid for the unemployed, the hungry and those facing eviction. Biden would extend the 15% increase in food stamp benefits through September.
  • $1,400 per person for eligible recipients. This would be in addition to the $600 payments approved by Congress in December. (Total $2,000)
  • $1,200 checks for spouses of undocumented immigrants who do not have Social Security Numbers.
  • Boost for one year the Child Tax Credit to $3,600 for children under 6 and $3,000 for those between the ages 6 to 17.
  • Increase jobless benefits to $400 a week and extend unemployment benefits through September.
  • $25 billion in additional rental assistance for low-and moderate-income households who have lost their jobs during the pandemic.
  • $ 4 billion for mental health and substance abuse
  • $20 billion to meet the health care needs of veterans.
  • $15 billion to create a new grant for small business owners
  • $350 billion to state, local and territorial governments to keep their frontline workers employed, distribute the vaccine, reopen schools and increase COVID testing
  • $20 billion for a national vaccination program.

We cannot expect life to go back to normal once we get to the end of the tunnel. Our behavior has been fundamentally altered from a year of social distancing, travel restrictions and working from home.

Perhaps the biggest change in secular behavior is a difference in the savings rate. Before the great financial crisis, the saving rate was 4%. After that it was 7%. Some economists predict that going forward it could be 10%. This is crucial, because the savings rate determines aggregate spending. A high saving rate is a deadweight drag on the demand for goods and services. It can make the difference between the economy growing in the low 2% range and in the high 2% range. In a $22 trillion economy, that is very important.

Originally published in the Sarasota Herald-Tribune