On Monday’s broadcast of CNBC’s “Squawk Box,” White House Council of Economic Advisers member Jared Bernstein stated that forgiving student loans does put a log on the fire of demand and inflation, but it’s canceled out by restarting payments on student loans, so it’s “a bit of taking a log off the fire and putting an equal-sized log on it.”
Co-host Joe Kernan asked, “It’s been a brutal couple of weeks for the market, obviously. Awful inflation numbers, now the likelihood of a hard landing, maybe even a global recession, according to some. The student loan forgiveness, in the middle of all this, adding hundreds of billions, even a trillion dollars to the demand side, doesn’t that make the Fed’s job even more difficult? Your allies, Larry Summers, Jason Furman both warn that that’s a problem. The president, once again, bowing to the far left. Does that justify increasing demand and making things worse right at this time, Jared? I know you know — [there’s] no way you can sell this to me with a straight face.”
Bernstein responded, “Let me try the following: Because this is a fact that is not reflected in the wrap you just gave me. And if you ask Jason and Larry about this, I think they’ll agree. You should try and find out for yourself. The thing you left out was restart, that is restarting student loan payments, which, of course, have been in forbearance since the pandemic began. That begins in January. And if you actually look at the numbers month-by-month, the amount of restart, even with debt forgiveness, basically offsets the amount of forgiveness. So, in that sense, it’s a bit of taking a log off the fire and putting an equal-sized log on it. So, if you look at the inflation implications, we’ve modeled this. We’ve looked at the numbers carefully. And again, I haven’t seen those who understand this part of the plan disagree with this point, we think that the impact on inflation will be neutral because restart offsets forgiveness.”
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