Millions of government stimulus checks are coming soon – but will they make inflation worse?

While you shouldn’t expect to get a fourth stimulus check from the federal government, more money may still be on the way. Several states, including California and Colorado, have announced plans to send relief payments to millions of residents in the coming months.

But amid the excitement, there are also worries: Could well-meaning government stimulus checks end up making inflation worse?

The first stimulus check related to COVID-19 was issued by the government in April 2020 under the CARES Act. Eligible Americans got up to $1,200 to help deal with the high unemployment rate and the fallout from the coronavirus hitting the United States The government then distributed two more stimulus checks, until $600 and $1,400respectively, to people whose incomes were within the eligibility parameters.

But today’s economic environment is very different from what it was then. The unemployment rate, which rose to 14.7% in April 2020, is now around 3.6%. Meanwhile, inflation reached its highest level in 40 years. As recession warnings to crack down, gas, groceries and rent prices soared to almost unaffordable levels.

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Some experts say the first three rounds of stimulus checks contributed to this rise in inflation. And now that states are giving more money, that concern is front and center again.

“Giving these checks to the general public is going in the wrong direction,” says Nicholas Economides, professor of economics at New York University’s Stern School of Business. “It will increase inflation.”

Here’s what you need to know about state stimulus checks and their potential impact on the economy.

Who gets the government stimulus checks?

On June 30, California Governor Gavin Newsom confirmed he had signed a state budget that will provide direct tax refunds of up to $1,050 for 23 million Californians.

The goal? To help fight inflation.

“Global inflation. Rising costs. It’s tough out there and we know it. So we’re giving you back $9.5 billion,” reads one Press release issued by Newsom’s office.

The Golden State is not alone. Oregon State Government said in June that it would distribute one-time payments of $600 to more than 236,000 households who received the earned income tax credit on their 2020 taxes. In Colorado, Gov. Jared Polis announcement The Coloradans would receive checks for $750 for individuals this summer ($1,500 for joint filers).

“Everyone in our state is feeling the impact of rising costs, and I refuse to let the government sit on taxpayers’ money when it could be used to make life a little easier for residents. of our state,” Polis said last month.

Other states that have promised to give stimulus checks of varying sizes to eligible residents include Delaware, Georgia, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, Caroline from the south and Virginia.

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Will government stimulus checks make inflation worse?

The federal stimulus checks came at a time when many people needed them badly, and there’s no doubt they helped support the finances of many families. But economists were not silent on their concerns about the impact on the economy. Lawrence Summers, economist and former Treasury secretary, wrote an opinion piece for The Washington Post on the risks associated with the scale of the third stimulus checks.

“While there are huge uncertainties, it is possible that a macroeconomic stimulus on a scale closer to World War II levels than normal recessionary levels will trigger inflationary pressures of a type that we have not not seen in a generation, with consequences for the value of the dollar and financial stability,” Summers wrote in February 2021.

Now that federal stimulus checks are in the rearview mirror, some experts say they actually helped push up inflation.

Fiscal support measures intended to reduce the impact of the economic effect of the pandemic may have pushed up inflation by about three percentage points by the end of 2021, according to a recent report published by the Federal Reserve. Bank of San Francisco. And Jason Furman, professor at Harvard University and former economic adviser to President Barack Obama, told ABC News earlier this year, the high inflation in the United States compared to other advanced economies was “probably due to the fact that we had a larger fiscal response”.

State stimulus checks will put extra money in people’s pockets in a way that will increase inflation much like the federal stimulus did, according to Economides.

“Inflation happens because there is a limited amount of goods in stores and everywhere in the economy, and people have a lot of money and try to spend it on [that] limited amount of goods,” adds Economides. “Essentially, the price of goods is bid up.”

Of course, stimulus checks aren’t the only inflation culprit. Economists have pointed to a change in consumption patterns and, therefore, an inability to keep up with demand as the causes of our current situation. In addition to supply chain crisis, the war in Ukraine also led to a spike in commodity prices. As such, people love felm DDemocratic presidential candidate Andrew Yang have insisted stimulus checks are not responsible for inflation.

Although stimulus checks can be politically popular, Economides says there are better ways for states to fight inflation than handing out checks. For example, he recommends lower taxation of goods and services such as gas — a move he says is unlikely to increase inflationary pressures the way more stimulus money would.

More money :

Why gas prices could soon plunge

Here’s how inflation actually affects the stock market

The 5 Best High Yield Savings Accounts of 2022

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