The COVID-19 pandemic impacted the U.S. and global economies. The U.S. government responded to the crisis with policies implemented during the Trump and Biden administrations to provide fiscal stimulus to the economy and relief to those affected by the global disaster. The Federal Reserve used monetary stimulus measures to complement the fiscal stimulus.
Key Takeaways
- The COVID-19 pandemic impacted the U.S. and global economies.
- The U.S. government and the Federal Reserve provided fiscal stimulus and relief programs.
- Monetary policy, interest rates, quantitative easing (QE), and lending programs were used to stimulate the economy.
- Eviction and foreclosure moratoriums, paycheck protection, student loan forbearance, and stimulus checks were implemented.
Impact on the U.S. Economy
The pandemic began in February 2020 and was a catalyst for recession. The COVID-19 crisis pushed the U.S. stock market into bear market territory in March 2020, with the S&P 500 unable to recover to pre-pandemic highs until June 2020. The U.S. unemployment rate rose as high as 14.7% in April 2020, the highest since the Great Depression.
The U.S. economy, measured by real inflation-adjusted gross domestic product (GDP), fell by 32% in the second quarter of 2020. GDP rebounded in the third quarter and ended the year with an increase of 4.0% year over year (YOY).
U.S. Monetary Policy
The Fed’s stimulus measures fell into three basic categories: interest rate cuts, loans and asset purchases, and regulation changes. Loans and asset purchases were general purchases made as part of quantitative easing (QE) and repurchase operations where the Fed buys assets directly.
The Fed also created specific lines of credit and programs to finance loans from the Primary Market Corporate Credit Facility (PMCCF) through special purpose vehicles (SPVs). It then lends money to companies through the SPV, which uses the money to fund operations.
Interest Rates
The Fed cut its target range for the federal funds rate twice during March 2020, first by 0.50% to a range of 1% to 1.25%, then by 1.00% to a range of 0% to 0.25%. The Fed had not moved interest rates in increments greater than 0.25% since the Great Recession. On March 15, 2020, the Fed also cut its discount rate, another key interest rate, by 1.5%, down to 0.25%.
Following the pandemic and in the wake of recovery, the Fed made a series of dramatic increases to the Federal Funds Rate in 2022 and 2023 to combat rising inflation.
Quantitative Easing (QE) and Repo Operations
On March 12, 2020, the Fed expanded its repurchase agreements, where the Fed buys assets and sells them back at a later date, by $1.5 trillion, then added another $500 billion four days later to ensure enough liquidity in the money markets. Repo operations effectively allowed the Fed to loan money to banks.
Asset-purchasing programs like quantitative easing (QE) were implemented. The Fed directly buys U.S. Treasuries and mortgage-backed securities (MBS) to increase the supply of money and influence inflation. The Fed, which implemented the program during the Great Recession, restarted it on March 15, 2020.
In late 2021, the Fed reduced QE through tapering in response to a strengthening economy and rising inflation. These purchases totaled $120 billion per month. In March 2022, the Fed reversed course with a period of quantitative tightening to combat record inflation caused by low unemployment, pent-up consumer demand, and supply chain issues.
Discontinued Federal Reserve Programs
The Fed set up several new lending programs, now discontinued, as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act using funds from the U.S. Treasury Department’s Exchange Stabilization Fund (ESF) as seed capital and entirely on its own.
Paycheck Protection Program Liquidity Facility (PPPLF)
The Fed launched the Paycheck Protection Program Liquidity Facility (PPPLF) on April 9, 2020, in concert with the CARES Act. This program lent money to banks so they could, in turn, lend money to small businesses through the Paycheck Protection Program (PPP). On April 30, 2020, the program expanded the types of lenders that could participate in the program. The program ended on July 30, 2021.
Primary Market Corporate Credit Facility (PMCCF) and Secondary Market Corporate Credit Facility (SMCCF)
On March 23, 2020, the Fed created the Primary Market Corporate Credit Facility (PMCCF) to buy corporate bonds to ensure corporations could obtain credit. It initiated the related Secondary Market Corporate Credit Facility (SMCCF), which bought corporate bonds and bond exchange-traded funds (ETFs) on the secondary market.
The SMCCF started purchasing bond ETFs on May 12, 2020, and individual bonds to create a “broad, diversified market index” of individual U.S. corporate bonds on June 16, 2020. The combined purchase limit for the programs was $750 billion.
The Treasury Department contributed $75 billion in initial capital to these two programs from the ESF: $50 billion for the PMCCF and $25 billion for the SMCCF. The premise was that these programs made banks more willing to lend to corporations because they knew that they could sell the loans to the Fed. Both programs stopped purchasing bonds on Dec. 31, 2020.
Term Asset-Backed Securities Loan Facility (TALF)
On July 28, 2020, the Fed resurrected another Great Recession program: the Term Asset-Backed Securities Loan Facility (TALF), back-dated to March 23, 2020. It made up to an initial $100 billion in loans to companies and took asset-backed securities (ABS) as collateral. This included a variety of securities, such as those based on auto loans, commercial mortgages, or student loans.
On April 9, 2020, the Fed expanded the ABS types that could be purchased. The Treasury Department’s ESF made a $10 billion initial equity investment in the SPVs. The program stopped making new loans as of Dec. 31, 2020.
Following the pandemic, the Supreme Court blocked plans to provide student debt forgiveness for some borrowers. The administration has continued to pursue student debt relief through other measures.
Main Street Lending Program
On March 23, 2020, the Fed announced the Main Street Lending Program, which set up an SPV to purchase up to $600 billion in small- and medium-sized business loans. Under the plan, the Fed purchased a 95% stake in each loan, with the bank keeping 5%. To qualify, businesses needed 10,000 or fewer employees or up to $2.5 billion in 2019 revenue.
On July 17, 2020, the Fed extended the program to nonprofit organizations that didn’t have endowments larger than $3 billion, had fewer than 15,000 employees or less than $5 billion in 2019 revenue, and met several other additional requirements. The program purchased stakes in both new loans and loan extensions.
Under the CARES Act, the Treasury Department planned to make a $75 billion equity investment in the SPV. The terms of the loans were five years, with interest deferred for one year and principal payments deferred for two years. On Oct. 30, 2020, the Fed reduced the minimum size of the loans that the program would purchase. The program ended on Jan. 8, 2021.
Municipal Liquidity Facility (MLF)
On April 9, 2020, the Fed launched the Municipal Liquidity Facility (MLF), which purchased up to $500 billion of short-term notes issued by:
- The 50 states and the District of Columbia
- Counties with at least 500,000 people
- Cities with at least 250,000 people
- Multistate entities (defined by the Fed as an entity created by a compact between two or more states)
- Up to two revenue bond issuers per state, such as airports or utilities
Smaller states could designate their largest city or county to qualify for the facility even if it didn’t meet the population requirement. On Aug. 11, 2020, interest rates for tax-exempt notes were lowered by 0.5 percentage points. The difference between taxable and tax-exempt notes was also lowered. Under the CARES Act, the Treasury Department made an initial equity investment of $35 billion in the SPVs. It stopped purchasing notes on Dec. 31, 2020.
Primary Dealer Credit Facility (PDCF) and Money Market Mutual Fund Liquidity Facility (MMLF)
On March 17, 2020, the Fed relaunched a Great Recession-era program: the Primary Dealer Credit Facility (PDCF) to give loans to primary dealers backed by securities as collateral. There was no set limit to the amount of credit issued.
The Fed opened the Money Market Mutual Fund Liquidity Facility (MMLF) on March 23, 2020. This program lent money to financial institutions so that they could buy money market mutual funds. Like the PDCF, it did not have a specific lending limit.
The Treasury Department gave the MMLF $10 billion of debt credit protection for the program. On May 5, 2020, the central bank said that participation in the MMLF wouldn’t affect the liquidity coverage ratio of participating banks. This program was similar to the Asset-Backed Commercial Paper Money Market Fund (AMLF) program launched in 2008 after the collapse of Lehman Brothers caused a money market fund to fail. The AMLF ended on Feb. 1, 2010. Both the PDCF and the MMLF expired on March 31, 2021.
Commercial Paper Funding Facility (CPFF)
On March 17, 2020, the Fed established the Commercial Paper Funding Facility (CPFF), which purchased short-term debt known as commercial paper to ensure that those markets stayed liquid. On March 23, 2020, the Fed broadened the variety of commercial paper that it would buy to lower the pricing of the debt.
While it had no limit on the amount it purchased, the CPFF stopped purchasing debt on March 31, 2021, and the SPV continued to be funded until its assets matured. The Treasury Department made a $10 billion equity investment in the CPFF from its exchange stabilization fund (ESF).
U.S. Fiscal Policy
Throughout March and April of 2020, the U.S. government passed three main relief packages and one supplemental package.
The House of Representatives passed the $3.4 trillion HEROES Act in May 2020, and the Republican Senate majority proposed but did not pass the $1 trillion HEALS Act in July 2020. In December 2020, Congress passed the Consolidated Appropriations Act (CAA), which included a $900 billion stimulus bill, providing additional support during the pandemic.
During this period, Presidents Donald Trump and Joseph Biden issued a plethora of executive actions in attempts to provide aid during the pandemic, as have various executive branch agencies. The $1.9 trillion American Rescue Plan Act was signed into law by President Biden on March 11, 2021.
Executive Actions
President Trump
On Aug. 10, 2020, President Trump signed four executive actions to provide additional COVID-19 relief.
- The Lost Wages Assistance (LWA) program included a $400-per-week payment to those receiving more than $100 in weekly unemployment benefits, funded by up to $44 billion from the Federal Emergency Management Agency (FEMA) disaster relief fund. The program was retroactive to Aug. 1, 2020, and ended Dec. 27, 2020.
- Moratorium on payments and interest accrual on student loans held by the government until the end of 2020. The moratorium was set to expire on Sept. 30, 2020, but was repeatedly renewed. Student loan payments restarted in October 2023.
- Executive action instructed the Department of the Treasury and the Department of Housing and Urban Development (HUD) to “promote the ability of renters and homeowners to avoid eviction or foreclosure.” It also instructed the FHFA, which oversees Fannie Mae and Freddie Mac, to “review all existing authorities and resources that may be used to prevent evictions and foreclosures for renters and homeowners.”
- A fourth executive action deferred payroll taxes for Americans earning less than $100,000 from Sept. 1, 2020, to Dec. 31, 2020. The taxes were required to be paid back in 2021.
President Biden
President Biden announced a series of executive actions on his first day of office, Jan. 20, 2021.
- The American Rescue Plan passed on March 30, 2021, and expanded student loan relief to include defaulted privately held loans through Sept. 30, 2021. A 0% interest rate and a pause of collections would affect 1.14 million borrowers who defaulted on a privately held loan under the Federal Family Education Loan (FFEL) program since March 13, 2020.
- The CARES Act created a moratorium on evictions, initially set to expire on July 24, 2020. The moratorium was extended several times, and a final time to July 31, 2021. The conditions for the moratorium depended on adjusted gross income (AGI), extraordinary medical expenses, an individual’s ability to make partial rental payments, and the likelihood of homelessness.
$4.6 Trillion
The total federal spending in response to COVID-19, including loans, stimulus checks, and vaccination and testing programs.
Stimulus and Relief Package 1
The first relief package, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, nicknamed Phase One, was signed into law on March 6, 2020 by President Trump. It allocated $8.3 billion to do the following:
- Fund research for a vaccine
- Give money to state and local governments to fight the spread of the virus
- Allocate money to help with efforts to stop the spread of the virus overseas
Stimulus and Relief Package 2
The second relief package, the Families First Coronavirus Response Act (FFCRA), or Phase Two, was signed into law on March 18, 2020. The law allocated a budget for relief that included the following:
- Providing money for families who rely on free school lunches in light of widespread school closures
- Mandating that companies with fewer than 500 employees provide paid sick leave for those suffering from COVID-19, as well as providing a tax credit to help employers cover those costs
- Providing nearly $1 billion in additional unemployment insurance money for states, as well as loans to states to fund unemployment insurance
- Funding and cost waivers to make COVID-19 testing free
Separately, on March 18, 2020, the Federal Housing Administration (FHA) and the Federal Housing Finance Agency (FHFA) implemented foreclosure and eviction moratoriums for single-family homeowners whose mortgages were FHA-insured or backed by Fannie Mae or Freddie Mac. The eviction moratorium on FHA and other government-backed loans was extended to Sept. 30, 2021. Additionally, the FHFA announced on Sept. 24, 2021, that Fannie Mae and Freddie Mac would continue to offer COVID-19 forbearance to multifamily property owners experiencing hardship due to the COVID-19 emergency.
Stimulus and Relief Package 3: CARES Act
The third—and largest—relief package was signed into law on March 27, 2020. This law, called the Coronavirus Aid, Relief, and Economic Security Act and nicknamed the CARES Act or Phase Three, appropriated $2.3 trillion for many different efforts:
- One-time, direct cash payment of $1,200 per person plus $500 per child
- Expansion of unemployment benefits to include furloughed people, gig workers, and freelancers until Dec. 31, 2020
- Additional $600 of unemployment per week until July 31, 2020
- Waiver of early withdrawal penalties for 401(k)s for amounts of up to $100,000 until Dec. 31, 2020
- Mortgage forbearance and a moratorium on foreclosures on federally backed mortgages for 180 days
- $500 billion in government lending to companies affected by the pandemic
- $349 billion in loans and grants to small businesses through the PPP and the expanded Economic Injury Disaster Loan (EIDL) program
- More than $175 billion for hospitals and healthcare providers
- $150 billion in grants to state and local governments
- $30.75 billion for schools and universities
Stimulus and Relief Package 3.5
A supplementary stimulus package, nicknamed Phase 3.5, was signed into law on April 24, 2020. It appropriated $484 billion, mostly to replenish the PPP and the EIDL, and contained additional funding for hospitals and COVID-19 testing.
Another supplementary measure, the Paycheck Protection Program Flexibility Act of 2020, which modified the PPP, was signed into law on June 5, 2020. It made the following changes to the program:
- It allowed businesses 24 weeks to spend the money, up from the initial eight-week period.
- It lowered the requirements for loan forgiveness. Businesses now had to spend only 60% of their PPP funds on payroll instead of the 75% previously required.
- It allowed businesses that received PPP loans to delay paying payroll taxes.
- It allowed businesses loan forgiveness if they didn’t rehire workers who refused good-faith offers of reemployment or were unable to restore operations to levels before the COVID-19 pandemic.
- It gave businesses until the end of 2020 to restore their payrolls to pre-crisis levels.
- It increased the loan maturity of PPP loans taken out after June 5, 2020, to five years.
- It extended the time borrowers had to pay back unforgiven parts of the loan.
Stimulus and Relief Package 4
On Dec. 21, 2020, Congress passed the Consolidated Appropriations Act, a $900 billion stimulus and relief bill attached to the main omnibus budget bill. Then-President Trump signed the bill on Dec. 27, 2020, but urged Congress to increase the direct stimulus payments from $600 to $2,000. Its contents included:
- Direct payments of $600 per person, including for dependents ages 16 and younger, to individuals making up to $75,000 per year.
- Eleven weeks of expanded unemployment benefits starting on Dec. 27, 2020. The benefits expanded by $300 a week. The Pandemic Unemployment Assistance (PUA) program for self-employed and contract workers was extended, as was Pandemic Emergency Unemployment Compensation (PEUC) for people who exhausted their unemployment assistance. These programs expired on Sept. 5, 2021.
- $325 billion in help for small business loans, including $284 billion in forgivable PPP loans, $20 billion for EIDL grants for businesses operating in low-income areas, and $15 billion for live cultural venues.
- An extension of the CDC eviction moratorium through Jan. 31, 2021, that expired on Aug. 26, 2021.
- $45 billion for transportation funding, including $15 billion in airline payroll support, $14 billion for transit, and $10 billion for state highways.
- $69 billion to public health measures, including $22 billion in aid to states for testing and tracing, $20 billion to the Biomedical Advanced Research and Development Authority (BARDA), $9 billion to the CDC and state governments for vaccine distribution, and $9 billion to support healthcare providers.
- $82 billion in education funding, including a $54.3 billion K–12 Emergency Relief Fund and a $22.7 billion Higher Education Emergency Relief Fund.
- $25 billion in emergency rent assistance.
- $26 billion in nutrition and agriculture funding, including a 15% increase in Supplemental Nutrition Assistance Program (SNAP) benefits and food bank funding.
Stimulus and Relief Package 5: American Rescue Plan
On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021, implementing a $1.9 trillion package of stimulus and relief proposals. Roughly $350 billion of the total funding was allocated to state and local governments. The key points of the plan as it was passed are the following:
- Direct cash payments of up to $1,400 for individuals earning less than $75,000 a year, plus $1,400 per dependent. The payment decreased for those with income over $75,000, phasing out entirely for individuals with an income of $100,000 a year.
- Increasing the maximum annual Child Tax Credit from $2,000 to $3,000 per child ages 6 through 17 and $3,600 for each child under age 6. The increase lasted through 2021, and payments began phasing out for couples making over $150,000 a year and individuals who are heads of households and made more than $112,500 a year. Legislation to extend the increased credit for 2022 was not passed.
- $300 a week in expanded unemployment insurance through Sept. 5, 2021.
- $10,200 in unemployment benefits were free from federal taxes in 2021 for households with incomes less than $150,000 a year. That figure was doubled for married couples filing jointly.
- $121 billion in funding for K–12 schools.
- $50 billion for the CDC to administer and distribute vaccines, diagnose and track COVID-19 infections, and purchase testing and personal protective equipment (PPE) supplies.
- $39 billion in funding for higher education.
- $30.4 billion in funding for public transit.
- $21.5 billion in emergency rental assistance.
- $25 billion for the Small Business Administration to make grants for “restaurants and other food and drinking establishments.”
- $40 billion in funds for childcare—$15 billion in childcare assistance and $25 billion to help childcare providers continue to operate and meet payroll.
- $15 billion to support airline industry workers.
- $7.25 billion in additional PPP funding, expanding which nonprofits can benefit from the program.
- Any student loan forgiveness passed from Dec. 31, 2020, to Jan. 1, 2026, as nontaxable income.
Supplementary Measures
On March 17, 2020, Treasury Secretary Steven Mnuchin extended the deadline for paying both individual and business taxes for tax year 2019 to July 15, 2020.
On March 20, 2020, then-Education Secretary Betsy DeVos suspended student loan payments and interest accrual for federally held student debt. The Biden administration extended student loan payments and initiated a student loan forgiveness plan. However, the program was rejected by the U.S. Supreme Court in June 2023. In October 2023, student loan payments restarted.
On April 19, 2020, the Trump administration said businesses could delay payment of tariffs for 90 days if they suspended operations during March and April of 2020 and “demonstrate[d] a significant financial hardship.”
When Were Stimulus Checks Discontinued?
Federal stimulus checks were discontinued for 2022. However, 16 states implemented stimulus programs for qualifying residents in the form of checks, rebates, refunds, or credits.
What Regulation or Policy Changes Did the Federal Reserve Implement?
The Fed made several technical changes to hold on to less capital so that banks could lend more. The Fed relaxed bank reserve requirements that expired on March 31, 2021. The policy allowed banks to exclude Treasuries and deposits with Fed banks from their balance sheets to calculate reserve requirements, allowing them to lend more. The Fed implemented temporary restrictions on dividends and buybacks in 2020 that ended June 30, 2021, for banks that met capital requirements during the 2021 stress tests.
What Was the White House COVID-19 Preparedness Plan?
In March 2022, the White House released a preparedness plan that secured funding for tests and supplies so that schools, businesses, and child care centers could remain open, paid sick leave for workers affected by COVID-19, and expanded services at public-facing offices.
The Bottom Line
The COVID-19 pandemic affected households and businesses. Government programs and stimulus policies helped reduce the financial strain on U.S. citizens. Although federal stimulus programs and funds have ended, some states have implemented stimulus programs for residents that meet specific criteria during a period of intense inflation.
