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Sunday, May 29, 2022

Stimulus Check Update: How Could Fed Tapering Affect It?

The last year saw the Federal Reserve chose to reduce the short-term interest rates to zero, as the stimulus check payments managed to help. This came at the same time the government was able to see the massive economic impact that was a direct result of the pandemic.

We also saw it restart quantitative easing- beginning with a few large-scale purchases of assets, and from June of 2020, it also ended up with a monthly Treasury amount along with an agency mortgage-backed security bonds which had a valuation of about $80 and $40 billion respectively. The balance sheet since then has seen the addition of about $4 trillion. With the stabilizing of the economy, there has been major talk about reducing the speed of this purchasing- which is referred to as tapering. 

Understanding the Fed’s tapering on stimulus check bonds

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It needs to be remembered that the main reason behind this quantitative easing was to secure the US economy with stimulus check payments. Through reducing the interest rates over a far longer-term, borrowing became cheaper for both mortgages and business dealings, with the Federal government hitting the mortgage-backed bonds along with the debt it had accrued across the stock markets. This has been considered to be quite a normal reaction to a crisis- which we ended up facing in 2020. 

Although it is pretty inevitable that tapering will occur, there have been multiple disagreements taking place over how and when it should take place. Jerome Powell, the chairman of the Federal Reserve, stated in August that the pace and timing of the reduction in the purchase of assets will not be done with the intention of carrying out a direct signal regarding the time of lift-off of interest rates- which could have a major impact on the stimulus check payments issued. 

Interestingly, legislators are more concerned about inflation than the tapering of the stimulus check. 

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