The $1.9 trillion COVID-19 stimulus plan won’t ‘overheat’ economy: Biden economic advisor

Don’t count White House Council of Economic Advisers member Jared Bernstein as in the same camp of those super worried investors concerned that the $1.9 trillion COVID-19 relief bill will spur a strong stretch of inflation this year (and perhaps hit the equities markets).

“It’s important to distinguish between heat and overheat. Nobody in the White House is arguing that there are zero risks of price pressures, that would be irresponsible. It would be something we of course would not do because any economic policy involves risk. So what you have to do is risk management. You have to examine the risks of doing too little against the risks of doing too much. Now the risks of doing too little are extremely limited,” Bernstein explained on Yahoo Finance Live.

Bernstein said it’s more important to get economic stimulus in the system to help improve the Black unemployment rate, those that are long-term unemployed and others collecting unemployment insurance. He argued the economy’s capacity is “much larger” than many of the people, currently fretting about overheated inflation, realize.

Said Bernstein, “So if you put all of that together, we think we are looking at heat [regarding inflation/economy], not overheat.”

Suffice it to say, the inflationary worrywarts continue to have control of the equities markets right now.

The yield on the 10-year Treasury has gone from about 1.07% on Feb. 1 to 1.56% presently. Investors have reasoned that with a strong economic recovery later this year as more people get the COVID-19 vaccine, inflation will return. In turn, that will spur the Fed to raise interest rates faster than expected and then depress stock prices.

To that end, the 10-year yield eclipsed 1.6% in the immediate aftermath of the better than expected February employment report on Friday. Non-farm payrolls rose by 379,000 in February, above the 200,000 expected. The unemployment rate fell to 6.2%, unexpectedly improving compared to January’s 6.3%. Private payrolls improved 456,000.

Stocks initially fell on the news amid those aforementioned inflationary concerns, adding further pressure to once red-hot tech stocks such as Tesla. While stocks has since recovered, the markets have been ugly the past month as yields have climbed: the Nasdaq Composite and S&P 500 are down 7.5% and 2%, respectively.

Most economists Yahoo Finance have talked with lately are in Bernstein’s camp on inflation, and believe the rise in 10-year yields is overdone. If that proves correct this spring, equities could regain their upward bias.

“When we look at the slack in the labor market, there is a fair amount of slack in the labor market,” reminded KPMG chief economist Constance Hunter on Yahoo Finance Live.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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