The Federal Reserve Raised Interest Rates. How Does This Affect the Chances of Another Stimulus Check?

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  • The Federal Reserve raised interest rates by half a percentage point on May 4, 2022.
  • The central bank was motivated to do this to curb rising inflation.
  • Although the Fed operates independently, this decision still sheds light on the likelihood of another stimulus check.

Will the Fed's actions affect your chances at another stimulus check? 

Millions of Americans have spent 2022 hoping for another COVID-19 stimulus check. The need for more financial relief is undeniable, with a petition for ongoing payments reaching 3 million signatures. 

Inflation is a big reason why so many people are clamoring for more money. Prices were up 8.5% year-over-year in March, and many people are struggling to cover the high costs of gas, groceries, and housing. 

Those eagerly awaiting a stimulus payment may be watching for any moves out of Washington, D.C. that could impact the likelihood of more money hitting their bank account. As a result, the Federal Reserve meeting on May 4, 2022, and the Fed's announcement of a change in interest rate, should be carefully considered. 

The Federal Reserve raised interest rates to help curb rising inflation

The Federal Reserve announced it would be increasing the federal funds rate by half a percentage point. This is the overnight rate at which banks are able to loan their cash reserves to each other. It serves as a benchmark interest rate. 

The rate increase was the largest since 2000. It followed a smaller rate increase of 0.25% in mid-March. It brought the federal funds rate up considerably to between 0.75% and 1.00%. During the heart of the pandemic, this benchmark rate was set near 0% in an attempt to stimulate the economy by encouraging affordable lending. 

In addition to raising interest rates, the Federal Reserve also announced it would reduce the assets it is currently holding. The Federal Reserve had been purchasing bonds throughout the pandemic to keep money moving and further stimulate the economy, but the Fed now plans to slowly move to reduce its $9 trillion balance sheet.

Together, these two moves are intended to tighten the money supply to help reduce surging inflation, which is at 40-year highs.

What does this mean for the chances of another stimulus check?

The Federal Reserve's drastic actions to try to stem the tide of rising prices suggests that economic leaders are worried about just how fast costs are increasing.

The rapid rise in prices has led some lawmakers to propose additional stimulus relief. For example, several Democratic representatives and senators have introduced proposals to provide direct payments to the public to help them cope with higher gas costs.  

However, the actions of the Fed in trying to tighten the money supply will likely make many in Washington, D.C. reluctant to sign onto more stimulus money. 

While the Federal Reserve operates independently without requiring approval of its decisions by Congress or the White House, it would make little sense for the Biden administration to provide more money to stimulate the economy at the same time as the Fed is trying to cool down the economy.  

Any additional payments are likely to only accelerate demand, making inflation worse. And some Democratic lawmakers, including Senator Joe Manchin, have made clear they aren't on board with more spending under these current economic conditions. Without the support of Manchin, more stimulus payments can't pass Congress because Republicans are united in their opposition and Democrats have only the barest majority. 

All of this means another direct payment is probably not coming this year, so you'll need to find other ways to cope with rising costs if inflation is hitting your budget hard. 

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