The early days of the pandemic were among the darkest economic moments in recent history for low-income Americans struggling with unemployment and lost incomes. The Trump administration quickly provided relief by signing a $2 trillion package in March 2020 that sent $1,200 checks to every American who earned less than $75,000 along with enhanced unemployment, and forgivable business loans. President Joe Biden followed with additional stimulus money.
In total, American households received more than 472 million pandemic relief payments worth $803 billion. In total, nearly $5 trillion went to households, businesses, local governments, and other institutions.
And the programs worked, at least as far as their intended purpose. “Material hardship in U.S. households fell sharply” as a result of the payments, a 2021 Census Bureau survey found, including for problems like malnutrition, mental health, and financial instability.
For months, partisan debates have raged over whether the early pandemic stimulus fueled the past year’s high inflation, or if high prices were caused by other factors like China’s COVID lockdowns tangling supply chains.
The answer, according to a new study by the St. Louis Fed, is that government stimulus was indeed responsible for some U.S. inflation. The authors found that 2.6 percentage points of the 7.9% 12-month inflation rate in February 2022 was due to stimulus.
The authors found that stimulus payments led to substantially more demand for goods in the run-up to 2022, but industrial production at the time was unable to keep up. The result was a higher amount of “excess inflation,” they said.
By narrowing the study to February 2022, the authors excluded any analysis of more recent inflation rates. It also happened to largely miss the impact of Russia’s invasion of Ukraine on Feb. 24, which caused energy and food prices to soar.
An economic lifeline
While white-collar American workers retreated to…
Read the full article here
