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Fed’s Latest Policy Action Means End of Coronavirus Stimulus Checks Is Near

By Aman Jain. Originally published at ValueWalk.

end of coronavirus stimulus checks

Fourth stimulus checks were already unlikely, but fears over the Omicron variant led many to believe that Congress may send more stimulus money. However, the latest piece of information from the Federal Reserve could mean the end of coronavirus stimulus checks from the federal government.


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End Of Coronavirus Stimulus Checks?

The U.S. economy bounced back strongly after states started easing restrictions in the later part of 2020. This resulted in a better than expected recovery and has now pushed the Federal Reserve to eventually end the pandemic stimulus program, which was started almost two years ago.

Under the program, the Federal Reserve kept interest rates low to ensure liquidity in the economy. Also, the Federal Reserve has been purchasing Treasury bonds and MBS (mortgage-backed securities) to put more money into the economy.

Now, with the economy back on the growth track, as well as to control rising inflation, the Federal Reserve has decided to taper its bond purchasing program. This tapering of the bond purchasing program would have a direct impact on the chances of a fourth stimulus check.

Since the start of the coronavirus pandemic last year, Congress has sent three stimulus checks, as well as come up with targeted stimulus programs, including for renters, homeowners, workers, students and more.

All these stimulus programs have helped families and individuals, impacted by the pandemic, to meet their financial needs. Unfortunately, these programs are partly responsible for the rising inflation as well.

Thus, to keep a check on inflation, Federal Reserve directors decided to gradually reduce their bond-buying program. So, this year, the agency plans to lower their bond-buying from $120 billion to $105 billion and then to $90 billion.

The Federal Reserve plans to cut back bond-buying by $30 billion per month. This means they would buy just $60 billion of treasury and mortgage securities in January and the program would eventually phase out in March 2022.

“Economic developments and changes in the outlook warrant this evolution of monetary policy, which will continue to provide appropriate support for the economy,” Fed Chairman Jerome Powell told reporters recently.

Focus Now On Controlling Inflation

Usually, the Federal Reserve makes changes slowly, but this time they are decelerating stimulus quickly, and the primary reason for this is the record-high inflation. In November, inflation recorded the biggest year-on-year increase since June 1982, at 6.8%.

“With Consumer Price Inflation in touching distance of 7 percent, it should be of no surprise to see the Fed accelerating tapering,” Seema Shah, chief strategist at Principal Global Investors, said in a BBC piece.

Policymakers, in their latest economic projections, forecast the inflation to be at 2.6% next year, compared to their September forecast of 2.2%. However, policymakers expect the inflation rate to drop to 2.3% in 2023 and then to 2.1% in 2024.

In their latest policy statement, the Federal Reserve admitted that the price increase had exceeded its 2% target “for some time.”

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