ONEsomeone hoping for one fourth stimulus check maybe not lucky but US government and Federal Reserve have teamed up to launch one stimulus program during the COVID-19 pandemic as they seem to boost the economy and keep the money flowing from companies to workers and back to companies. However, there is a time limit on this program as it is expected to stop in the spring of 2022.
That stimulus checks issued by the U.S. government had already stopped, even is some states continue to hand out stimulus checks to their residents. Now, the Federal Reserve will follow suit, as their stimulus to bond purchases needs to be eased earlier than originally planned.
How is the Federal Reserve currently contributing to U.S. stimulus programs?
By buying billions of dollars a month, the Federal Reserve is able to influence the US economy. However, this brings with it inflation, and that is the problem.
In November, Federal Reserve executives already decided to reduce their bond purchases from $ 120 billion. dollars per month to 105 billion. dollars and then 90 billion. dollars. Now they want to start cutting down by 30 billion. dollars a month, which means they will buy ‘only’ 60 billion. dollars in government and mortgage bonds in January.
This means that the Federal Reserve’s stimulus program is set to be fully phased out by March 2020.
Why is the Federal Reserve phasing out the stimulus before March?
Rising inflation is the main reason for this change in policy. Although the Federal Reserve usually likes to make changes slowly, they slow down the stimulus quickly due to fears that inflation may get stuck at a high rate.
“The Fed has apparently just woken up to the inflationary pressures that are eroding the US economy,” Seema Shah, chief strategist at Principal Global Investors, said in a piece to the BBC. “With consumer price inflation at a touchdown of 7 percent, it should come as no surprise to see the Fed accelerate the downsizing.
“If they could wave a wand, I think they would stop it altogether because it’s not necessary in the economy at the moment,” he added. Kenneth Rosen, a housing economist at the University of California, as he speaks with the Wall Street Journal. “So much money is flowing through every asset class.”