DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
ASSISTANT SECRETARY For legislative Affairs
April 19, 2022 The Honorable Tim Scott Ranking Member Special Committee on Aging United States Senate Washington, DC 20510 Dear Senator Scott: Thank you for your letter requesting information on the American Rescue Plan and inflationary pressures in the U.S. economy. As you know, the Treasury Department has taken a leading role in implementing the American Rescue Plan to provide American households much needed relief as the Covid pandemic entered its second year. Treasury oversaw the rapid distribution of Economic Impact Payments in late March and April 2021, an effective rollout of the advance payments for the expanded Child Tax Credit, and the distribution of billions of dollars in rental assistance, homeowner assistance, and aid for state, local and tribal governments. The American Rescue Plan, in concert with an expedited vaccination campaign, fostered the rapid recovery of the US economy. In fact, GDP growth averaged 5.7 percent last year
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the highest rate in 40 years
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along with the fastest calendar year increases in employment and the sharpest decline in the unemployment rate. This growth dramatically exceeded private-sector forecasts and projections by the Congressional Budget Office. By the second quarter of 2021, U.S. economic activity exceeded its pre-pandemic level, faster than any other major advanced economies. By most estimates, the U.S. economy is closing in on full employment and forecasters expect continued declines in unemployment and faster-than-trend GDP growth. This extraordinarily fast recovery has resulted in undesirable rates of inflation as the supply side of the economy has not kept up with demand. This supply contraction has many factors, including that the private sector did not plan for a robust recovery. For example, among other factors, domestic oil production declined sharply at the start of the pandemic on expectations of an extended period of weak demand and is now only starting to catch up, leading to high prices. A complete recovery is closely tied to our ability to achieve widespread vaccinations across eligible populations. Efforts to sow misinformation have kept some Americans from getting vaccinated and has prolonged the pandemic. In particular, its continued spread has likely exacerbated the mismatch between supply and demand and contributed to higher inflation. Specifically, the composition of household demand has remained skewed towards goods, drawing down inventories and straining supply chains. In some parts of the country, continued high rates of transmission have kept workers on the sideline and posed challenges for parents who want to return to work, further contributing to wage and price pressures. Your voice in
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overcoming vaccine misinformation can help encourage Americans to get vaccinated and boosted to move us durably past the pandemic. Like the consensus from professional forecasters, we expect inflation to moderate gradually this year as the pandemic recedes, demand switches from goods to services, and the supply side of the economy rebounds
, though Russia’s brutal invasion of Ukraine is likely to add to inflationary
pressures in the near-term. The Biden Administration is working to assist the private sector in unclogging supply chains and making them more resilient. Ultimately, the first line of defense in achieving price stability and controlling inflation is the Federal Reserve. We respect the
Federal Reserve’s
independence and have confidence that the Federal Reserve will use the tools at its disposal and make the right decisions to bring inflation down in a manner consistent with fostering full employment. Like you, we recognize that inflation disproportionately impacts families who spend a greater share of their household income on necessities like gasoline, food, and rent. The Administration and Treasury have advocated for several policies to address these costs and help families meet everyday expenses, including through a Child Tax Credit. Furthermore, we have advocated for paying for these proposals to avoid adding to the deficit and to minimize inflationary pressures. I hope this information is useful to you and your Committee. I also look forward to working with you on these issues in the days and months ahead. Sincerely, Jonathan Davidson Assistant Secretary for Legislative Affairs