Will the Fed’s actions affect your chances of another stimulus check?
- The Federal Reserve raised interest rates by half a percentage point on May 4, 2022.
- The central bank was motivated to do this to curb rising inflation.
- Although the Fed operates independently, this decision still sheds light on the likelihood of another stimulus check.
Millions of Americans have spent 2022 hoping for yet another COVID-19 stimulation check. The need for more financial relief is undeniable, with one request for current payments reached 3 million signatures.
Inflation is a big reason why so many people are crying out for more money. Prices rose 8.5% year-on-year in March and many people are struggling to cover the high costs of gas, groceries and housing.
Those eagerly awaiting a stimulus payment may be keeping an eye out for any move from Washington, DC that may affect the likelihood of more money hitting their bank account. As a result, the Federal Reserve meeting on May 4, 2022, and the Fed’s announcement of an interest rate change should be carefully considered.
The Federal Reserve raised interest rates to help curb rising inflation
The Federal Reserve announced it would increase federal funds rate by half a percentage point. This is the day-to-day interest rate at which banks are able to lend their liquidity reserves to each other. It serves as a benchmark interest rate.
The rate increase was the largest since 2000. It followed a small rate increase of 0.25% in mid-March. It brought the federal funds rate significantly up between 0.75% and 1.00%. At the heart of the pandemic, this benchmark rate was set close to 0% in an attempt to stimulate the economy by encouraging affordable loans.
In addition to raising interest rates, the Federal Reserve also announced that it would reduce the assets it currently holds. The Federal Reserve had bought bonds throughout the pandemic to keep money moving and stimulate the economy further, but the Fed now plans to move slowly to reduce its $ 9 trillion balance sheet.
Together, these two measures aim to tighten the money supply to help reduce rising inflation, which is at its highest in 40 years.
What does this mean for the chances of yet another stimulus check ?.
Federal Reserve drastic measures to try to stem the tide of rising prices suggest economic leaders are worried about how fast costs are rising.
The rapid rise in prices has led some legislators to propose further stimulus relief. It has several Democratic representatives and senators e.g. submitted proposals to provide direct payments to the public to help them cope with higher gas costs.
However, the Fed’s actions in an attempt to tighten the money supply are likely to cause many in Washington, DC to hesitate to sign on for more stimulus money.
While the Federal Reserve operates independently without requiring the approval of its decisions by Congress or the White House, it would not make much sense for the Biden administration to provide more money to stimulate the economy while the Fed tries to cool the economy down. .
Any further payments are likely to only accelerate demand, making inflation worse. And some Democratic lawmakers, including Senator Joe Manchin, have made it clear that they are not involved in more spending under these current economic conditions. Without the support of Manchin, multiple stimulus payments cannot pass Congress because Republicans are united in their opposition and Democrats have only the smallest majority.
All of this means that there is unlikely to be another direct payment this year, so you will need to find other ways to cope with rising costs if inflation hits your budget hard.