Federal Stimulus Aid Would Make Inflation Worse, Experts Warn

While several states are sending out stimulus checks and other forms of financial aid to residents to try and combat sky-high prices of everything from food to gasoline thanks to record inflation, no one should expect money from the federal government anytime soon. However, experts caution that there is an excellent reason for the federal government not to be sending out a fourth round of stimulus checks.

While the stimulus checks were a massive help to many who struggled during the beginning of the COVID-19 pandemic, allowing many to stay afloat or get out of debt due to the extra cash, they were also believed to be part of the problem when it comes to what has caused high inflation in the U.S. The demand that extra cash on hand would create, in addition to a still constrained supply chain around the world, would only cause prices to soar even higher.

“Stimulus checks would increase demand,” Jason Furman, an economics professor at Harvard and former chair of President Obama’s Council of Economic Advisers, told Forbes. “At the moment, however, supply is very constrained so any additional demand would just result in higher prices.”

Josh Bivens, research director at the Economic Policy Institute, agreed with Furman, stating that the supply of products remains an issue, so the government doesn’t need to find a way to increase demand the way it did initially during the pandemic, and money would be better spent on trying to find ways to ease the supply chain issues.

“We don’t seem to have a demand-generation problem today. People (including businesses and governments) are spending robustly, so, we don’t need to pump up aggregate demand,” Bivens said.

This is not the first time experts have warned that additional stimulus aid would only add to the woes many are facing now thanks to inflation, which soared to 9.1% in June. In fact, back in 2021, some even warned that the chances of another round of payments were going to be “fairly slim” due to shelter-in-place orders no longer being in place, forcing an economic downturn from people staying home.

While on a federal level checks aren’t seen as likely, several states have sent other forms of aid out to their residents instead, in an effort to help them combat the higher prices they have been facing at the grocery store and the gas pump. Through various relief programs, budget surplus and other methods, states such as California, Colorado, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Maine, Minnesota, New Mexico, New York, South Carolina and Virginia have all sent payments or approved future payments ranging from $50 to $850.

When federal stimulus checks were sent out, those eligible for all three received a total of $3,200. They received $1,200 in the first round of checks approved by then-President Donald Trump, as well as $600 in a second round before his presidency ended. President Joe Biden approved the third and final check of $1,400 during his first few months in office.

Photo: Pixabay