Private job growth was scant in January, prompting President Joe Biden to redouble his call for a big aid package. Congressional Democrats are racing to push through his $1.9 trillion plan by the time supplemental unemployment benefits expire on March 14.
While the stimulus has been attacked by Republicans and some economists as being too large or not targeted enough, Mohamed El-Erian, president of Queens’ College at Cambridge University, said another bill will be necessary to finish the job of boosting economic growth.
“A good fiscal effort covers four things: Immediate relief for those suffering. It covers support to the COVID battle — accelerate vaccines, reduce infection. Three, it provides more household economic security. Four, it battles what is going to be downward pressure on productivity,” El-Erian, who is also chief economic advisor at Allianz, told Yahoo Finance Live. “What this fiscal package does is two and a half. What it doesn’t do is enough on the productivity side.”
The Biden administration has planned the current aid package as a rescue bill, with another bill to follow. U.S. House of Representatives Majority Leader Nancy Pelosi told reporters Friday that the president said infrastructure would be the next priority after the relief bill. Biden’s advisers have said they will also tackle climate issues in the second effort.
The current plan is “good enough for the immediate economy, but not good enough to battle what economists call scarring, this notion that short-term problems become long-term problems, this notion that short-term unemployment becomes long-term unemployment, companies go bankrupt, etc. It is enough for now,” El-Erian said.
This focus on scarring is why economists pay particular attention to numbers in the employment report like long-term unemployed, people without jobs for 27 weeks or more, at 4 million. That’s 39.5% of the total unemployed, according to the Bureau of Labor Statistics.
Despite an economy that’s still struggling, El-Erian reiterated his oft-expressed view that “the path of least resistance is higher” for stocks because of monetary stimulus — unless bond yields begin to move up more meaningfully.
Julie Hyman is the co-anchor of Yahoo Finance Live, weekdays 9am-11am ET.
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