Interest Rates Were Raised by the Federal Reserve. How Will This Affect the Possibility of Another Stimulus Check?

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Millions of Americans have been counting down the days until another COVID-19 stimulus check arrives in 2022. The need for additional financial assistance is undeniable, as evidenced by a petition for continued payments garnering 3 million signatures.

Inflation is a significant factor in why so many people are clamoring for additional funds. In March, prices increased by 8.5 percent year over year, and many people are struggling to keep up with the high cost of gas, groceries, and housing.

Those anticipating a stimulus payment may be keeping an eye out for any moves out of Washington, D.C. that could affect the likelihood of additional money reaching their bank account. As a result, the Federal Reserve’s May 4, 2022, meeting and subsequent announcement of an interest rate change should be carefully considered.

 

Stimulus Check

 

The Federal Reserve increased interest rates in order to assist in containing rising inflation.

The Federal Reserve announced a half-point increase in the federal funds rate. This is the overnight rate at which banks can lend each other their cash reserves. It serves as a reference rate for interest rates.

This was the highest rate increase since 2000. It followed a 0.25 percent rate increase in mid-March. It increased the federal funds rate significantly, to between 0.75 and 1.00 percent. This benchmark rate was set near zero percent during the pandemic’s peak in an attempt to stimulate the economy by encouraging affordable lending.

Along with raising interest rates, the Federal Reserve announced that it would reduce its current asset holdings. Throughout the pandemic, the Federal Reserve purchased bonds to keep money flowing and stimulate the economy, but the Fed now intends to gradually reduce its $9 trillion balance sheet.

These two measures, taken together, are intended to tighten the money supply and aid in the reduction of surging inflation, which has reached 40-year highs.

 

How does this affect the likelihood of another stimulus check?

The Federal Reserve’s drastic measures to stem the tide of rising prices indicate that economic leaders are concerned about the rate at which costs are rising.

Prices have risen at a breakneck pace, prompting some lawmakers to propose additional stimulus relief. Several Democratic representatives and senators, for example, have introduced legislation to provide direct payments to the public to assist them in coping with rising gas prices.

However, the Fed’s actions in attempting to tighten the money supply will likely discourage many in Washington, D.C. from signing on to additional stimulus money.

While the Federal Reserve operates independently of Congress and the White House, it would make little sense for the Biden administration to increase monetary stimulus at the same time the Fed is attempting to cool the economy.

Any additional payments are likely to increase demand, thereby exacerbating inflation. And several Democratic lawmakers, including Senator Joe Manchin, have stated unequivocally that they oppose increased spending in the current economic climate. Without Manchin’s support, additional stimulus payments will fail to pass Congress, as Republicans are united in opposition and Democrats have a razor-thin majority.

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All of this means that another direct payment is unlikely this year, and you’ll need to find other ways to cope with rising costs if inflation is having a significant impact on your budget.

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