Biden is 'pouring gasoline on the inflationary fire' with his $10,000 student debt cancellation, a top Obama economist warns
- A top Obama administration economist has warned that student debt cancellation could drive up red-hot inflation.
- President Joe Biden wheeled out plans to provide eligible borrowers with $10,000 of debt relief Wednesday.
President Joe Biden's new plan to cancel $10,000 in student debt is "reckless" given the red-hot inflation already running in the US economy, according to top economist Jason Furman.
The student-loan forgiveness plan announced Wednesday could drive up the rate of price rises, already at 40-year highs, as people go out and spend the cash, the former Obama administration economist said on Twitter.
"Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless," Furman tweeted Wednesday.
The Biden administration plans to cancel $10,000 in student debt for borrowers earning under $125,000 a year, while Pell Grant recipients with the same income will get up to $20,000 in relief. It will also extend the pause on student-loan repayments until the end of 2022.
That will cost the government an estimated $500 billion over the next 10 years, according to a blog post by the Committee for a Responsible Federal Budget, a nonprofit fiscal watchdog.
Furman calculated that the deal will put around $250 billion back into Americans' pockets, and argued that the vast majority of that cash will be spent rather than saved.
That boost to consumption would likely lift prices between 0.1 and 0.2 percentage points higher, he added, which could only be outweighed by Federal Reserve interest rate hikes.
"That is $150 to 200 in higher costs for a typical household," Furman said.
"That is a relatively small inflation number," he added. "But it would take about 50 to 75 basis points on the Federal Funds Rate to extinguish that much inflation."
High inflation rates have rattled US stock markets this year, with the benchmark S&P 500 down about 13% so far, as investors worried about how aggressive the Fed would be in tightening monetary policy to tame soaring prices. Rate hikes tend to weigh on stocks because they mean higher borrowing costs and lower cash flow for companies.
Biden has come under pressure to tackle soaring prices for the likes of gasoline and food, many driven higher by the fallout from Russia's war on Ukraine.
This isn't the first time Furman has criticized the Biden administration's approach to the inflation problem.
In January, he told Insider the administration was wrong to pin the blame for price rises on corporations that have raised their prices to boost profits in the aftermath of the pandemic.
"Corporate greed is a bad theory of inflation," Furman said. "Almost everything other than the Federal Reserve is a sideshow when it comes to the dynamics of inflation."