Beaucoup Bucks: The $5000 Echo Stimulus Checks
One last hurrah for inflation-generating fiscal stimulus as millions are set to receive big refund checks
Inflation is alive and well in America. The Federal Reserve’s FOMC meeting is this week. Investors and speculators anxiously await Chairman Jerome Powell’s press conference on Wednesday. That is when the Fed will announce its forecast for rate hikes and what actions, if any, it will take regarding the balance sheet. These responses are to withdraw liquidity and curtail inflation.
I wrote back in October why the Fed’s taper won’t work. Price inflation for goods and services is here to stay. What they would accomplish is asset deflation where stocks “correct” from nose-bleed valuations. In anticipation of a hawkish Fed, the market indices are selling off aggressively.
At the same time the Federal Reserve was dismissing inflation, we had the piling on with recurring monthly stimulus checks for tens of millions of families. That 6-month pilot program has since sunset with the last set of payments having gone out on December 15. Prices skyrocketed as a result with consumers using the stimulus for everyday purchases. The Consumer Price Inflation index spiked to 7.0% in December, the highest level since 1982.1
As the central bank wrangles inflation with expected lip service, we still have massive stimulus checks scheduled for issue to millions of families. I call it the “echo stimulus.”
The Echo Stimulus
The $1.9 trillion American Rescue Plan Act was signed into law on March 11, 2021. This statute provided one-time direct payments of $1,400 per qualified person, including children.2 In addition, it expanded the Child Tax Credit to $3,600 for children under 6 years old for 2021.3
Millions of babies were born in 2021 at a rate of about 10,000/day in the U.S. The vast majority of those births will be to stimulus-qualified families. If they made less than $150,000 combined household income, families will likely receive up to the full $5,000 in a refund when they file taxes.
The expanded Child Tax Credit was issued as a monthly payment for 6 months in 2021 based on the 2020 tax return. For families with newborns in 2021 who did not opt-in for the monthly stimulus checks, they’re likely to receive the lump-sum when they file.
Over the next 90 days, around 3.5 million families will receive these stimulus boosters. Even the families who filed for the monthly stimulus, the remaining $3,200 ($1,400 stimulus check + $1800 remaining portion of expanded Child Tax Credit) will be in play.
These cash infusions will dogpile on existing inflation. While this is the final round in this particular saga for stimulus checks, there will be calls for more fiscal aid in the future. Everyday consumer staples will continue to see price escalations. Families will spend more for less.
The initial stimulus checks were met with jubilation from voters, but the hangover is proving to not have been worth it. Stimulus checks are akin to drinking salt water. The feeling of thirst cannot be quenched with the ocean. Likewise, the feeling of a falling standard of living cannot be offset with supplemental government payments.
The Fed’s biggest task this week will be to set firm expectations that it is serious in fighting inflation. The echo stimulus is just more fuel to the inflationary inferno the central bank will be contending with. Let’s see what they do on Wednesday.
Davidson, Paul. January 12, 2022. Inflation reaches highest level since 1982 as consumer prices jump 7% in 2021. USA Today. https://www.usatoday.com/story/money/2022/01/12/cpi-2021-consumer-prices-climbed-7-2021-fastest-pace-since-1982/9178235002/
Pramuk, Jacob. March 11, 2021. Biden signs $1.9 trillion Covid relief bill, clearing way for stimulus checks, vaccine aid. CNBC. https://www.cnbc.com/2021/03/11/biden-1point9-trillion-covid-relief-package-thursday-afternoon.html
Leonhardt, Megan. March 10, 2021. Here’s who qualifies for the new $3,000 child tax credit. CNBC. https://www.cnbc.com/2021/03/10/who-qualifies-for-3000-dollar-child-tax-credit.html