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The Economy Needs a Push, But Just How Much Is a Trickier Puzzle

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Congress has also been using its fiscal arsenal—stimulus packages designed to support a recovery after a year of business interruptions, job losses, and death amid the Covid-19 pandemic.

and improving trends in virus infections and deaths are supporting the view that life can start to return to somewhat normal this year. But while analysts have become increasingly optimistic about the potential for rapid economic growth, Powell continues to sound restrained.

“The economic recovery remains uneven and far from complete,” he told the Senate Banking Committee. “The path ahead is highly uncertain.”

The tension is between doing too much and doing too little. The drawn-out recovery from the 2008 financial crisis points to the dangers of doing too little.

The Congressional Budget Office estimated that real gross domestic product last year was $633 billion below potential, creating an output gap of 3.3%, according to Capital Economics. Stimulus spending by Congress could erase that gap by the end of the second quarter.

The $900 billion stimulus package passed late last year was equal to 4.2% of GDP, while the current $1.9 trillion being debated on Capitol Hill is 8.8% of GDP, Capital Economics said in a report.Even if some […]

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