The question still reverberating in financial markets is to what degree the $1.9 trillion coronavirus relief will be spent, either immediately or if the virus recedes enough for shoppers to be allowed, and wanting, to go out.
This column previously pointed to surveys of both how the initial $600 stimulus was used, and plans for the $1,400 that has arrived for many households, to suggest much of it won’t be deployed into the economy.
Another way to look at it is if households perceive the stimulus to be additional income or additional wealth. Studies have shown that the propensity to spend out of wealth is just 5%, while the propensity to spend out of income ranges from 10% to 50%, according to a recent speech from Gertjan Vlieghe, a voting member of the Bank of England’s Monetary Policy Committee.
Dhaval Joshi, chief strategist at BCA Research, says whether the new stimulus is considered wealth or income depends on whether the household receiving it has a low or high income to begin with. But looking at past stimulus checks, there weren’t meaningful shifts in either consumption or inflation.
Accordingly, he thinks market expectations about inflation are getting carried away. He also says — in a note written before Thursday’s plunge in crude-oil prices
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