A refresher: Several rounds of fiscal stimulus — or government spending from various agencies of the federal government like the Small Business Administration — were passed earlier in 2020.
These rounds were worth trillions of dollars. Not only did the Federal Reserve loosen financial conditions drastically by lowering interest rates and buying bonds across all areas of the bond market, but once people and businesses were able to access a lower cost of debt and shore up their liquidity, the economy still needed some juice. The unemployment rate had spiked to above 15%. Households and small businesses needed free cash. And they got that.
The $1,000-plus stimulus checks to all families was said to have been a key factor in spurring spending. Corporate executives said so on earnings reports. Company analysts and macro strategists said so in their research reports. Consumer spending data have been strong.
Now, the Federal Reserve can’t loosen financial conditions much from here and more stimulus may be necessary to uphold the currently fast pace of the economic recovery.
The Democrats in Congress, usually more willing to spend than Republicans are, want a more sizable stimulus package. Republicans, eager to keep the government debt burden low ahead of the presidential election, want the stimulus package to be $1 trillion or lower. Some reports suggest they want it to be $500 billion. Those reports have also suggested there would be no stimulus checks.
The previous checks amounted to several hundreds of billions of dollars.
There is now waning political will in Congress to offer free money to households. The economy is also recovering quickly and Republicans Congress feel less pressure now to spend.
The point: saving money if you are unemployed isn’t a bad idea right now. Buying more stocks is debatable at present. It’s not a sure thing that a second round of stimulus checks will be coming to Americans’ bank accounts.