What inflation means for financial security

Jim Kessler, Third Way Executive Vice President of Policy, speaks with Yahoo Finance on potential impacts of inflation on financial security for households and expectations for Congress on the bipartisan infrastructure bill.

Video transcript

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ALEXIS CHRISTOFOROUS: In this week's Funding Our Future, we look at rising inflation and what it means for people's financial security. Joining us today is Jim Kessler, Executive Vice President of Policy at Third Way. Jim, good to see you.

You know, earlier, we had our reporter on breaking down what Fed Vice Chair Clarida said today that the US economy is on track by the end of next year to meet employment and inflation hurdles that the Fed has set to raise interest rates. What impact do you think that's going to have on the average household?

JIM KESSLER: Well, I think for a lot of households, you know, inflation is going to be fairly benign because wages are keeping up with it. And you know, if you're a senior citizen, for example, and you're living on Social Security and fixed income, inflation-- there's cost of living adjustments. So, that theoretically keeps up with inflation there, but some of the other fixed income that you might have doesn't keep up with it.

But you know, I think right now we need to be watchful on inflation, maybe not so much worried about it. It seems like the Fed has got things pretty much well under control. The 10-year bond is in pretty good shape.

And you know, we're in this Rip Van Winkle economy where the transition of waking up from it is creating some anomalies that I'm not sure are really going to last. Rental car inflation, for example, and used car inflation, that's just not going to affect that many people. So, I think it's going to be episodic for folks.

KRISTIN MYERS: You know, Jim, I know what you're saying here that inflation right now is something really to watch and to monitor without being too cautious or too worried about, at least right now. And we have heard the Fed say repeatedly that inflationary moves right now are transitory. So, they're going to be temporary.

However, we have had a couple of folks on this show that have talked about the durability of inflation, and say that it might not be as transitory as some folks think. And have defined transitory to really be holding out a lot longer than we originally had indicated. So, at what point does some of these inflationary moves really become a concern for most Americans?

JIM KESSLER: Well, I think for some Americans, it's already a concern because they have seen certain things that they are paying for go up in price. And you know, if you were doing home remodeling, suddenly, like, if you're buying something for your house, it seems like the prices went up. And there was a period where your gas prices went up. So, there are places where consumers, they are just-- they're very much in tune with it.

But I also, you know, we're also facing a situation where the Delta variant is showing up and that might put a damper on the economy moving forward, because the roaring economy that we've experienced in the last several months might slow back down, and that's going to change the calculation again. And we just have to realize that this is a very unique economy that we're in. The recession was essentially a medically-induced economic coma.

We're coming out of it rapidly. And now, we've got another wave of COVID, mainly because people aren't getting vaccinated in lots of parts of the country, and that could have an impact too that we'll put a damper on inflation. So, we're in a very unpredictable situation right now.

ALEXIS CHRISTOFOROUS: I know that Congress has got a big plate in front of it right now. Lawmakers working on passing the bipartisan infrastructure package, and then it's going to be on to the budget and budget reconciliation. What are your expectations for that and how might that impact everyday Americans?

JIM KESSLER: So, the bipartisan infrastructure bill is making its way through the Senate. My expectation is that it will pass the Senate on Sunday, and then it'll go to the House. There's going to be a lot of consternation in the House because while the Senate moved on in a bipartisan way, the House really moved in a Democrats only package.

I expect it will pass the House, but there will be periods over the next week or so where it's going to look like it's all falling apart. That is part of the drama of Washington. That's going to move forward. Good for the economy. Good for jobs. Good long term for economic growth and wages. And good long term on climate.

Then we're going to move to budget reconciliation. That is the next package. That is Democrats only. They're ceiling on that package is $3.5 trillion over the next 10 years of new spending and tax cuts, et cetera. That is a ceiling that is-- you know, and that is a target by some, but I expect that number will come down.

And that package also, it's going to be paid for. What we spend in new programs and new tax cuts are going to be offset by some spending cuts and savings in other places and tax increases in other places. So, it's going to be close to a net zero in overall government spending with some of the usual government congressional trickery on how you score revenue increases and spending that well. But it will roughly work itself out.

It's going to be a package that has a lot of benefits for people who are middle class. There'll be a child tax credit, the $300 checks, that will go to working parents under an income of basically $150,000, and other elements as well. They'll be tax increases on those who are wealthy.

ALEXIS CHRISTOFOROUS: All right. Jim, we're going have to leave it there. Jim Kessler, Executive Vice President of Policy at Third Way. Thanks so much.