Piper Sandler reacts to calls for more fiscal stimulus? 'You've got to be kidding'

May 21, 2024 01:04 AM AEST | By Investing
 Piper Sandler reacts to calls for more fiscal stimulus? 'You've got to be kidding'

A bipartisan Senate group last week recommended tens of billions of dollars in new federal spending to ensure the safe development of AI and maintain the U.S.'s competitive edge, particularly against China.

The initiative was outlined in a report released Wednesday by the AI Working Group, led by Senate Majority Leader Chuck Schumer (D., N.Y.). The document serves as a road map for AI policy, presenting a number of recommendations to foster AI advancement while addressing potential risks associated with the burgeoning technology.

The senators proposed increasing federal spending on nondefense AI innovation to at least $32 billion annually, although they acknowledged that reaching this target could take several years.

The proposed spending would support various initiatives, including the design and manufacturing of advanced AI chips, local election initiatives, and a series of “AI Grand Challenge” programs aimed at promoting innovation.

“This is a time in which the dollars we put into this particular investment will pay dividends for the taxpayers of this country long term,” said Sen. Mike Rounds (R., S.D.), noting that China significantly outspends the U.S. on AI development.

Commenting on the prospect of more fiscal stimulus, Piper Sandler economists said the Senators behind the plan “have got to be kidding.”

“As we’ve written, we worry stealth monetary&fiscal stimulus will artificially stoke demand, and keep inflation sticky. Think tapering QT, student loan forgiveness, ERC payments, etc,” they noted.

“Yes, it would be just 0.1ppt of GDP per year, so by itself it wouldn’t be a game changer, but it highlights our concern that additional Washington stimulus will support eco activity for “election” reasons. The bad news is this will keep inflation sticky,” economists added.

Piper Sandler said that with stagnating goods demand, early signs indicate easing price pressures in some service sectors, particularly dining out, as real restaurant sales stall.

Discretionary services are seeing demand destruction, however, overall inflation remains high, driven by a sharp 6.2% year-over-year increase in the non-discretionary consumer price index (CPI).

This article first appeared in Investing.com


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