Early evidence that the stimulus is working
Personal income in the US surged in May thanks to an infusion of government stimulus funds, while consumers raised their spending modestly as confidence about the state of the economy continues to improve.
However, most of the monthly rise was the result of Federal benefit transfers and lower taxes. Americans, still facing rising job cuts and falling home prices, have been hoarding most of the additional funds, lifting the savings rate to a 16-year high in May.
My personal belief is that inflation fears are overstated. However, as said earlier I can’t rule out inflationary effects due to Treasury holders like China dumping the dollar. But that’s clearly due to investors’ lack of confidence, not a direct consequence of expansionary fiscal policy.
Update June 29th: Christina Romer, chair of the White House’s CEA, warned that premature efforts to rein back expansionary monetary and fiscal policy would lead lead to a repeat of Japan’s disastrous mistakes in the 1990s.