Stimulus checks made inflation worse, Federal Reserve data shows

Stimulus checks offered a powerful economic lifeline to millions of Americans over the last couple…

Stimulus checks offered a powerful economic lifeline to millions of Americans over the last couple of years. Especially in 2021, the second full year of the Covid pandemic, over the course of which the federal government sent out more than half a dozen stimulus checks. Tens of millions of families got a share of those funds, with data showing that it spared many of those families from falling into poverty. Today, however, inflation in the US is now at a multi-decade high. And that presents a vexing economic problem for the Biden administration.

What’s more? New data from a regional bank of the Federal Reserve strongly suggests that the stimulus checks and inflation are linked. Specifically, by one playing a role in causing the other.

The negative impact of stimulus checks

Inflation is a big enough problem that President Biden gave public remarks about it on Tuesday. That’s no surprise, given that a CNN poll from last week found that eight in 10 US adults are really worried about the problem. Among the poll’s findings, a majority of respondents said they felt the federal government isn’t doing enough to fight inflation. Even worse? A majority also said they think President Biden’s policies have had a negative impact on the economy.

Researchers from the Federal Reserve Bank at San Francisco, meanwhile, have published an analysis linking stimulus checks and inflation. It argues, among other things, that the former may have added some 3 percentage points to US inflation.

“Since the first half of 2021,” the bank’s research explains, “US inflation has increasingly outpaced inflation in other developed countries. Estimates suggest that fiscal support measures designed to counteract the severity of the pandemic’s economic effect may have contributed to this divergence by raising inflation (by) about 3 percentage points by the end of 2021.”

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You can read the full report right here. It goes on to note that US inflation has risen at a much more rapid clip than in comparable nations. “The interplay between when (stimulus checks were) delivered and how households responded to successive COVID waves created complicated dynamics in the economy. Building these dynamics into a simple model suggests that they may have contributed to about 3 percentage points of the rise in US inflation through the end of 2021.”

Biden’s inflation speech

President Biden delivers remarks in Washington, DC, on April 6, 2022. Image source: Shawn Thew – Pool via CNP/MEGA

In the meantime, voter attitudes toward inflation pose a very real danger for Democrats in this fall’s midterm elections. That explains, in part, the president deciding to talk about the problem publicly.

Along these lines, a new survey from Country Financial’s Security Index, which polled US adults in March, delivered more insightful findings along these lines. More than half of respondents said rising costs stemming from inflation will have a “big negative impact” on their purchase decisions. Specifically, on things like buying a new home.

A whopping nine in 10 respondents said they’re “very concerned” about inflation.

This problem is one reason why West Virginia Democrat Senator Joe Manchin declined to get behind the president’s goal of rolling out more child tax credit checks in 2022. Democrats and Republicans, remember, have a 50-50 margin in the Senate. And, generally, speaking, Biden’s party needs every single vote in order to pass big legislation. When Manchin demurred, blaming inflation, that put the final nail in the coffin on more federal checks.

Biden has acknowledged that inflation is a nettlesome policy issue. He told reporters this week: “I think our policies have helped, not hurt. Think about what they say. The vast majority of economists think that (inflation) is going to be a real tough problem to solve.” Meanwhile, more states around the country are sending out their own stimulus checks to help residents deal with rising costs.

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