The covid-19 pandemic is approaching its second anniversary and the United States has just passed another grim milestone surpassing 900,000 deaths. Despite continued disruptions to the status quo and covid-19 preventing people from working, no new covid relief is on the table.
Several factors are at play preventing action to help American households still struggling in the aftermath of the recession caused by the virus. Even after the country experienced its strongest pandemic surge to date. Here’s why.
Congress has previously acted quickly to provide relief to Americans affected by the pandemic
When the United States and the world were quarantined, millions of workers were confined to their homes by sending the unemployment rate soared to 14.7% in April 2020. Congress moved quickly to pass the 2020 CARES Act to help businesses and households, including the first round of stimulus checks of up to $1,200 for eligible adults and $500 per eligible child under 17.
Congress also passed generous enhanced pandemic unemployment benefits that have kept households afloat where workers’ businesses have been closed or have had to stay home due to the pandemic-induced upheavals in their lives. These benefits were extended in 2020 and again in 2021, but have now ceased, being considered by some to be the reason for a severe labor shortage in the United States.
Two more rounds of stimulus checks have also been passed in the meantime, up to $2,000 in total. They are credited with driving the economic recovery which had started to fall behind in late 2020 as a new variant caused an increase in infections. But the latter has also been blamed for the current high rate of inflation.
Unemployment is expected to fall to 3%
The American economy has become a gangbuster, recover much faster than after the Great Recession. With covid-19 vaccine shots in their arms, Americans have started venturing out again, driving up demand and hiring. This led to the highest number of jobs recorded in a year, with the United States adding 6.4 million in 2021.
The current unemployment rate of 4%, however, remains higher than the pre-pandemic level, when it was 3.7%. And for all the jobs that have been added, there still remains an almost similar number of unemployed Americans. However, St Louis Fed President Jim Bullard predicts he could drop below 3% in 2022a level that could mean the economy is overheating.
The Omicron variant did not slow job gains
Unlike last year, however, when the Omicron variant pushed new infections to much higher levels than at any time during the pandemic, the United States saw significant job gains. Data collected in the middle of the wave reported 467,000 new hires, more than three times what analysts had expected. Also, there are more job offers than there are workers available to take them. raise wages as companies try to attract employees.
On the other hand, 6 million people, almost twice as many as in December, were unable to work or lost hours in the previous month due to the pandemic disrupting normal activities at their workplace. The incredibly rapid increase in infections of the highly contagious Omicron variant thankfully seems to have reversed just as quickly.
The stimulus is responsible for high inflation
The latest round of $1,400 direct payments that began in March 2021, along with the massive amounts of covid-19 relief funds injected into the US economy, have been blamed for the above-normal inflation plaguing the nation. The Federal Reserve Bank of San Francisco looked at the effect of the US bailout specifically on inflation.
He found that Biden’s stimulus is temporarily increase inflationbut not causing “overheating” as has been suggested. Their analysis found that “ARP is expected to cause inflation to rise by around 0.3 percentage points in 2021. and just over 0.2 percentage points in 2022. The impact in 2023 is negligible.
Other factors contribute to driving up the prices of just about everything, a major source has been disruptions to supply chains caused by the pandemic. This has caused manufacturers to scramble to secure scarce supplies of inputs to manufacture their products. Americans in turn picked up consumer goods with surplus savings they have acquired growing demand on limited supplies during the lockdown.
The objective is to control inflation
During the year 2021, many economists and Federal Reserve policymakers believed that above-normal inflation would be temporary. However, as the level of inflation continued to reach new highs at the end of the year, the consensus shifted, and the central bank decided to be more hawkish.
In January, the Fed announced that it would begin to scale back its stimulus programs that have injected large amounts of cash into the US economy. It has also helped the stock market reach ever greater heights.
Additionally, central bankers will start raising interest rates, expected to start in March, which have been near zero during the pandemic. The Fed will have a difficult balancing act to accelerate fiscal tightening without anchoring inflation by moving too slowly or causing a recession if it moves too quickly.
Although another stimulus check could help people cope with the rising cost of living, the fear of pushing inflation even higher by pumping even more money into the economy silenced calls from lawmakers to do so.