Should The Federal Administration Go For The 4th Stimulus Check To Rein In Recession? Economists Remain Divided

Stimulus Check
Stimulus Check

The pandemic had a severe impact on the US and global economies. The federal administration responded promptly to the crisis by enacting several policies providing immediate stimulus checks to the economy. It brought immediate relief to those affected by this global disaster. The Federal Reserve also introduced a series of substantial monetary stimulus measures to complement the fiscal stimulus.

Early Period Of The Pandemic And Its Impact On The American Economy

The immediate shock of the pandemic was severe and sent the economy into a deep recession in February 2020. The stock market reacted negatively to the pandemic and went into a severe bear market a month later. The unemployment rate remained at an abnormal high of 14.7% in April 2020. It was the highest since the Great Depression.

The national economy measured by the gross domestic product fell an alarming 3.5% year-over-year in 2020. It was the first time since 2009 that the economy shrank YOY annually.

The federal administration by introduction unprecedented stimulus measures which led to the economy rebounding in 2020 itself. The success of the vaccines brought immediate relief to the economy and helped boost it. But the pandemic persisted with the discovery of new variants that were initially resistant to the vaccines.

The Beginning Of The Stimulus Check Payments

The first of the series of relief packages, the CARES Act signed into law in March 2020 was the third of the stimulus and relief packages immediate after the pandemic in the first quarter of 2020.

It was then the largest single relief package in American history calculated based on a nominal dollar amount. The CARES Act appropriated around $2.3T for various efforts including the $1,200 direct stimulus check to individuals and $500 for children.

The Act also ensured the expansion of unemployment benefits to cover gig workers, furloughed people, and other freelancers through December 2020.

An unemployment stimulus check of $600 a week was introduced until July 31, 2020, initially. Additionally, there was a $500 billion lending to affected companies. Hospitals and healthcare providers received more than $130B while local and state governments received $150B in grants.

Four executive actions also were signed by the president providing additional relief against the pandemic. These included the Lost Wages Assistance program which rolled out a weekly payment of $400 to those already receiving $100 and more in unemployment benefits.

The Second stimulus check in December 2020 gave an additional stimulus check of $600 to Americans. The change in government in Washington led to the Economic Impact Payment of $1,400 under the American Rescue Plan Act signed by new President Joe Biden in March 2021.

The unemployment check was also extended till July while the enhanced child tax credit stimulus check was given partially in advance to all families, including non-filers.

These checks helped citizens survive the pandemic in the face of a total stoppage in income for millions of Americans.

The Government Has Always Stepped In With Economic Support During Recessionary Periods

The federal government has always come up with stimulus relief whenever the economy has tanked in the past twenty-five years. During the dot-com crash in 2021, the Bush administration sent a $300 stimulus check to millions of households. 

The Fed slashed interest rates to historic lows under President Obama following the 2008 financial crisis and buoyed the financial markets in America. The following year he introduced an $830B package to mitigate the worst effects of the recession.

In 2020-21 the pandemic saw the Federal Reserve support the economy with emergency lending programs in the forms of stimulus checks, low-interest rates, and enhanced unemployment benefits.

Federal Administration Refuses To Issue Stimulus Check To Contain The Record Inflation

With another downturn on the way, the government this time around is reluctant to act in the predictable mode through stimulus checks. Any major federal relief effort is unlikely at this stage as policymakers struggled to contain inflation which was triggered in part by the successive stimulus checks, particularly the third economic impact payment.

The pandemic-linked stimulus checks are under critical scrutiny for triggering the present record-breaking inflation.

Stimulus Checks Stabilized Demand

Despite the blame that the stimulus checks have taken for triggering the present record inflation rate, the payments made the pandemic era recession much more bearable. The initial two stimulus checks alone lifted over 1.7M AmericansStimulus Check out of poverty. This included over 2M senors and 3M infants and children.

In the absence of the stimulus checks, consumer demand would have been way lower and would have led to lower demand and a large decline in employment. People spent the initial stimulus check mostly on food and utilities.

This has made many economists and politicians certain that whenever economic shocks place the economy under strain, the stimulus checks can certainly be considered a tool for the federal government to consider.

The Stimulus Checks Can Fill The Gaps Left By Other Benefit Systems

Some economists have argued that the stimulus payments could have been more refined and better targeted. But it is the very nature of bureaucratic red tape that slows down government processes and renders them obsolete. Any future deployment of stimulus checks will be more measured and focused.

The government is wary as they move towards an interest rate hike through the Fed. It aims to rein in rising prices. Thus, more infusion of cash to America could counter the government’s goal of keeping a lid on runaway inflation rates.

Many experts believe that the high inflation that the nation is currently facing was in part the consequence of the massive direct stimulus checks. It can lead to the belief that in the future, the stimulus checks will be way smaller and more focused.

Federal Government Dithering Leads To State Initiative To Send Stimulus Checks

With residents hurting badly due to inflation and the federal administration tied up in Washington politics, the states are gradually stepping into the gap created by the withdrawal of the federal government from the stimulus support measures.

For the second year in a row, most states have enjoyed huge budget surpluses from tax revenues. With their balance sheets fortified by federal pandemic relief funds, the state realizes that they are obligated legally to give the unspent amount back to the federal administration.

Previous articleSteph Curry Remembers Kobe Bryant From Early NBA Days
Next articleInfamous Drug Lord Rafael Caro Quintero Captured: Behind 1985 Killing Of DEA’s Kiki Camarena