The federal administration has piped down on further stimulus checks to support Americans at a time they need it the most.
The economic impact payments started at the right time as the world went into a prolonged lockdown. The resulting economic downturn hit low and moderate-income groups as millions were suddenly without a source of income.
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People found it tough to put food on the table and meet other daily expenses such as paying for their utilities and rent. In such a scenario, the first of the stimulus checks provided immediate relief.
People could manage their expenses while at the same time staying at home. This helped millions survive during the pandemic and also persuaded people to stay at home instead of venturing out for jobs, thus preventing any further spread of the pandemic.
Businesses shut across sectors and those that stayed open cut back on production and had to decrease wages.
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The first round of the stimulus check of $1,200 under the CARES Act came in April 2020, immediately after the country went into a prolonged lockdown. It helped stem the desperation that seeped in after the pandemic hit the shores of America.
The second stimulus check of $600 came in December 2020 even as the presidential election indicated a change of administration in Washington. The incoming president, Joe Biden immediately announced the third stimulus check of $1,400 along with a host of economic measures under the American Rescue Plan Act signed in March 2021.
Signed into law on March 11, ARPA provided $350B in extra federal funding for state and local governments. Along with the stimulus check, the Economic Impact Payment, there were support measures for businesses, other local bodies, states, and tribal areas. The funding portion for states was around $195B.
The money was distributed equally among the states and the Dist. of Columbia and the remaining funds were given out according to the unemployment figures. The local funding portion was around $130B, divided between cities and counties.
The three rounds of economic impact payment along with the additional support afforded to businesses and local bodies were not the only financial support initiated by the federal government. The enhanced unemployment checks continue through July while the enhanced child tax credit stimulus checks that started in July helped American families with children.
The CTC stimulus check which was given in monthly installments between July and December went a long way in easing child poverty even as the economy continued to splutter along in fits and starts.
The Generous Federal Stimulus Checks Triggered Inflation In The US
But post analysis of the stimulus checks payments has revealed that the payments were part of the reason for the record inflation that threatens to bring the economy to its knees. Prices of gasoline, other essential items, rent, and utilities have gone through the roof.
There was a catch in the most generous fiscal response globally to the pandemic. As prices continue to rise across the US at a pace not seen in decades, it has become clear that the stimulus came at a substantial, though unintended cost. The inflation rate began to rise in the last quarter and remains way above the danger mark.
It remains unclear if inflation has peaked, but it continues to creep up and is 9.1% for the 12 months ending June 2022. The largest annual increase since November 1981. The previous high was 8.6% according to the US Department of Labor data published on July 13. The next inflation update is scheduled for release on August 10.
The situation now remains toxic both politically and economically, and it has created a deep divide among policymakers, economists, and politicians as they dissect the merits and demerits of the stimulus checks.
The Stimulus Checks Considerably Reduced Poverty
The stimulus check was just what the economy needed then but the effect it had on inflation was undeniable. It helped Americans in tangible and significant ways. Primarily it immediately reduced poverty, something that would not have been possible through other alleviating measures. People were able to provide for their families despite suddenly losing all their avenues of income.
The Census Bureau’s supplemental poverty measures reveal that the stimulus check moved 11.7M citizens out of poverty in the first year of the pandemic alone. It was a monumental drop from 11.8% to 9.1% in the poverty rate. It fell even further to 7.7% in 2021. It was clear that the stimulus check led to a dramatic decline in poverty levels in the absence of other sources of income.
More importantly, the stimulus checks also cushioned workers at the time of the worst economic crisis to hit the American economy after the Great Depression almost a century ago. This in all probability helped the American economy bounce back in record time.
In April 2020, even as Americans received the first round of stimulus checks of $1,200 under the CARES Act, the unemployment rate stood at a disastrous 14.7%. But after two years, it has returned to the pre-pandemic level as jobs opened up. Despite the high inflation, it remains undeniable that people received just the support they needed to survive the pandemic. And the economy recovered admirably well as a result.
But it remains undeniable that the stimulus, especially the last round, led to higher prices and negatively affected the very people it was intended to help. But there were other major factors, including global supply chain issues and the war in Europe.
All major advanced economies are facing high inflation rates, but the divergence between European and American figures indicates that the sustained infusion of the amount directly into the hands of citizens led to a severe demand-supply imbalance and led to a spike in all-round prices, especially the prices of gasoline, other essential goods, and utilities.
A recent analysis by researchers at the San Francisco Federal Reserve indicates that the stimulus checks contributed to inflation in America by around 3 percentage points by end-2021.
Ironically, it has left Americans struggling and worse off financially than they were during the pandemic. It has particularly affected low and middle-income groups who live paycheck to paycheck and don’t have savings to fall back on. Inflation continues to outpace growth in wages. While there has been a 5.6% growth in wages year-over-year, 8.5% inflation recorded in March 2022 has meant that Americans are facing close to a 3% decrease in wages after adjusting for inflation.