Stimulus payments seemed to help Americans’ finances – but did they?
- President Joe Biden campaigned on a promise to provide $2,000 stimulus checks.
- He signed the American Rescue Plan Act to make that happen.
- These payments may have contributed to inflation, which is currently hurting people’s finances.
When President Joe Biden ran for office, he promised to provide additional coronavirus aid. And shortly after its inauguration, it followed.
Biden campaigned on a promise to provide $2,000 stimulus checks. In March 2021, he signed the American Rescue Plan Act to make that happen. This law authorized payments of $1,400. These payments, combined with money Americans had already received in December 2020, resulted in people receiving a total of $2,000 deposited into their bank accounts.
This money was intended to provide much-needed aid during the ongoing COVID-19 shutdowns. And the funds have actually helped lift people out of poverty and provided financial relief during difficult times.
However, questions now arise as to whether the payments were a mistake that caused economic hardship for Americans in the long run.
Here’s why stimulus checks may not have been a good thing
There’s a simple reason stimulus checks may not have been good for Americans’ finances over time, even though the payments have been invaluable in helping people maintain stability. in the months following the issuance of payments.
This reason is inflation. Specifically, the evidence suggests that the stimulus funds have driven up the prices of goods and services. This data comes from the Federal Reserve Bank of San Francisco.
The Federal Reserve compared inflation in the United States with other developed countries. Historically, inflation rates in developed economies have tracked each other closely, as issues such as global supply chain issues tend to have a similar impact around the world.
However, as inflation rose around the world due to changes in spending patterns caused by the coronavirus as well as global supply chain issues, Americans saw the prices of goods and services rise much higher. faster than many other countries. Stimulus payments that were provided last year are the most likely explanation, with the Federal Reserve estimating that the payments likely raised inflation by three percentage points towards the end of 2021.
Soaring Inflation Causes Long-Term Financial Difficulties
With inflation soaring in the United States, many people have found themselves paying higher prices for goods and services in recent months – and there are no signs that this will change any time soon. Unfortunately, as an analysis from FiveThirtyEight points out, the people who the stimulus money was most meant to help — and those who are least able to afford the price hike — are hitting the hardest. affected.
FiveThirtyEight’s analysis suggests that a key reason stimulus money has these long-term negative effects is that the size of the last payment created “excess demand”, which eventually caused prices to spike. . The $1,400 amount was political rather than based on evidence that such large payments were necessary, and pumping so much money into the economy resulted in too much of an increase in demand.
Unfortunately, many experts suggest that inflation will continue to outpace wage growth in the coming months, so these high prices are likely to continue even though stimulus funds are long gone. Americans will have to find other ways to meet the extra payment for necessities, as DC lawmakers are unlikely to get additional financial aid.