Fiscal Stimulus Is Turning Into a Fiscal Drag, in a Big Headwind for Growth

The federal pandemic support that helped propel the economy to blistering growth last year and put upward pressure on inflation is rapidly waning. That will weigh on consumers this year, pulling growth down though not by enough to knock the recovery off track, economists say.

Inflation-adjusted gross domestic product rose 5.5% in the fourth quarter from the same period a year earlier, its best annual rate since 1984. That was supported by roughly $3.6 trillion in federal spending in response to Covid-19 since the pandemic’s start, including direct support to households via stimulus checks, enhanced unemployment benefits, monthly child tax-credit payments, and aid to state and local governments.