Anthony J. Pennings, PhD


The Great Monetary Surge Since 2020 and the Return of Inflation

Posted on | March 4, 2022 | No Comments

COVID-19 hit dramatically in early 2020, sending the financial markets around the world reeling and unemployment soaring. The immediate response in the US was a monetary surge led by the Federal Reserve Bank and legislation by the US Congress.

The rising money tide reversed the economic collapse, alleviated some of the harshnesses of the K-shaped recovery, and helped many companies weather the sudden downturn.[1] These monetary and fiscal spikes continued to reverberate in the economy, increasing the value of financial assets, reducing unemployment, but also adding to inflationary pressure not seen since the 1970s.[2]

This post examines the 2020 monetary surge and compares it with additional spending in 2021 and the slight declines entering 2022. What impact did the second Trump stimulus have in December 2020? What additional liquidity did the Biden “Build Back Better” bills in 2021 introduce? Also, how much did the Fed’s continuing Quantitative Easing (QE), zero reserve ratios, and low interest rates contribute to the rise of inflation?

The chart below shows the amount of money in the economy over the last few decades and the dramatic jump in 2020.[3]

The Fed moved first as COVID-19 emerged. It slashed interest rate targets and let banks lend without restriction. The Fed Funds interest rate went down to nearly zero again while bank reserve ratios were reduced from 10 percent to 0 percent. That meant that banks could lend out freely without holding a fraction of deposits in reserve. Meanwhile, the Fed called desperately for government spending to assist the emergency and recovery process. Senate Leader Mitch McConnell responded.

Fiscal policy shaped quickly in the Senate. All US spending bills must originate from the House of Representatives, so the Senate used a previous House bill to create the CARES Act. The Middle Class Health Benefits Tax Repeal Act, originally introduced in the U.S. Congress on January 24, 2019 was used as a “shell bill” to begin working on economic and public health relief for the accelerating Covid-19 pandemic.

The Senate added content to combat the virus and protect faltering businesses and the unemployed. Then, on March 27, 2020, President Trump signed the $2.2 trillion CARES (Coronavirus Aid, Relief, and Economic Security) Act into law. Jared Kushner, the President’s son-in-law, became the “coronavirus czar” in charge of personal protective equipment (PPE) and other medical equipment needed to treat Covid patients.

The bill also included the controversial Paycheck Protection Program (PPP) and its famous Section 1106, which provided forgiveness of up to the full principal amount of qualifying loans. The PPP was replenished the next month with an additional $484 billion.

The chart below shows the amounts of M1 money in the economy (currency, demand deposit bank accounts, and liquid deposits, such as OCDs and savings deposits, and money market deposit accounts) including the dramatic jump in the spring of 2020 and extends the above chart into 2021 and the beginning of 2022.

Money supply

So, 2020 saw about $3.7 trillion in additional fiscal spending for COVID-19 relief in addition to the Fed’s QE, reduction of Fed Funds interest rates from 1.5% to near 0. These numbers show the dramatic economic stimulus that quickly turned the economy around as indicated partially in the Dow-Jones Industrial Index (DJIA) of the top 30 companies by market capitalization (shown below) and pricing power as well as the turn-around in unemployment.

Stock market since 2020

It was a pretty impressive response in that spring in 2020. The Fed hit hard with the reserve ratio, fed funds rate, and QE. Having done about all that it could to jack up the money supply in 2020, the Fed begged for fiscal support. The Senate and House of Representatives delivered. GOP Senate Leader Mitch McConnell had pulled in some impressive legislation with the CARES Act but the COVID-19 pandemic was still raging around the world and not affecting everyone the same.

Compare 2020 with the pandemic spending in 2021. Biden’s proposed Build Back Better plan was conceived to address COVID-19’s K-shaped recovery, specifically to strengthen the middle class, provide care for the elderly, increase affordable housing, and reduce child poverty. First on the agenda was the American Rescue Plan, passed and signed in March 2021 for about $1.9 trillion.[4]

Second was the bi-partisan infrastructure bill with $579 billion in new spending added to what had already been planned. While not specifically Coronavirus relief, the Infrastructure Investment and Jobs Act (IIJA) added $1.2 trillion over ten years ($120 billion a year) to the economy. This included money for roads and bridges, broadband, mass transit, and even for a network of EV charging stations.

Infrastructure Bill

Concerns about inflation increased during 2021, especially after President Biden signed a new bill for COVID-19 relief in the spring and the bi-partisan infrastructure bill in the summer. A third bill, the American Families Plan, or BBB III, was pushed by the progressive wing of the Democratic Party. It proposed additional spending of up to $6 trillion and was heavily debated, but it did not get the support of two Democratic Senators and was never voted on. The media narrative was very negative, not about the bill, but bickering in the Democratic party.

So roughly $2 trillion was added in 2021, or about half as much as the 2020 stimulus spending. It was still a lot of money, plus bank money from continued QE and low-interest rates. The $5 trillion in 2020 for domestic relief spending raised concerns about excess demand, especially in light of global reductions in the supply of goods and services. It was a lot to add to an economy with its supply of goods and services depleted by unemployment, closed factories, seaport bottlenecks, and rising energy prices.

But at the risk of sounding like Condoleezza Rice after 9/11, no one ever imagined the supply of goods and services would come under such pressure as COVID-19 continued. Inflation needs money but is also a matter of supply, and market failures can dramatically affect rising prices.

Inflation is a complex interplay between effective demand and the provision of goods and services. Inflation can be demand-pull or cost-push. Demand-pull inflation is when an increase in demand (too much money) is greater than the ability of production of goods and services to keep up and typically results in higher prices. Its calculation also needs to consider the pricing power of major suppliers. After all, prices only go up when suppliers change their price sheets.

Cost-push inflation happens when prices increase due to rising costs of raw materials and wages. The Russian invasion of Ukraine and the sanctions imposed created shortages of essential resources from both countries, such as aluminum and carbon-based products such as fertilizers, natural gas, nickel, and crude oil. It is difficult to assess the impact of food shortages that might result from the degradation of the Ukrainian infrastructure. Overall, rising costs of inputs, measured by the Producer Price Index (PPI), pressure suppliers to raise prices.

But most of the current problems come from supply shortages due to the limits of the COVID-19 pandemic. Calculating the delays in factory production, the chip shortages, the reduction in oil production, restaurant closures, and shipping containers waiting at the docks, etc., will give us a tally of what has gone missing in the US economy and what is producing inflationary forces.

We had a fantastic shot of money into the US economy during 2020. The legislated increases continued into 2021 but nowhere near the amounts of the previous year.[5] The stimulus helped forestall an economic collapse but became part of the complex equation of supply and demand forces increasing prices. The global inflation that emerged from the COVID-19 resulted from a “perfect storm” of economic and political issues.

Postcript 2024

A few weeks after the passage of the CHIPS and Science Act, Biden signed the Inflation Reduction Act (IRA) on August 16, 2022. The “Chips Act” appropriated $52.7 billion and authorized roughly $280 billion in new funding to boost domestic research and manufacturing of semiconductors in the United States. The IRA name was initially ridiculed by the Republicans as inflation reached 9.1% that summer, but the inflation rate halved over the next year and declined to 3.9% by early 2024.

In a surprising move, the IRA was sponsored by Senators Chuck Schumer (D-NY) and Joe Manchin (D-WV), who had previously opposed the progressive’s multi-trillion Build Back Better III version, primarily due to climate change regulations and massive spending. The fact that all Democrats in the Senate and House voted for the bill and all Republicans voted against it underscored the complex political dynamics at play.

Inflation rate since 2020

It focused mainly on healthcare, continuing subsidies for the Affordable Care Act, and reinstating the ability of the government to negotiate drug prices, especially insulin, that had been eliminated by the Bush-Cheney administration in 2003. The most significant fiscal impact was the $663 billion in tax benefits for energy, and the climate investments agriculture energy, manufacturing, transportation, environmental justice, and pollution reduction and/or resilience.[6]

Fed Funds Rate since COVID started

Another critical institution is the Federal Reserve, whose Chairman Jerome Powell insisted until late 2021 that the inflation rate was “transitory.” As shown in the chart above, the Fed’s targets went from near-zero interest rates (Fed Funds Rate) in March 2022 with 11 rate hikes to a range of 5.25 percent to 5.5 percent in July 2023 where it has stayed at an actual rate of about 5.3 percent for at least a year.

Covid is over (fingers crossed). Inflation has returned to George W. times (high of 4.1%), marking what Bloomberg called a remarkable turnaround given it took 8.5 years to get back to 3 percent after the 1970s. Spending was down in fiscal year 2023 decreased $137 billion, or 2.2 percent. Oil is up about 9% from a year ago due to geopolitical concerns, mainly shipping through the Red Sea. One last note: China’s production and tariffs on imports remain a long-term stress on prices in the US.

Citation APA (7th Edition)

Pennings, A.J. (2022, Mar 4). The Great Monetary Surge Since 2020 and the Return of Inflation.


[1] The K-shaped recovery indicated a split between groups of society that were able to adjust fairly rapidly economically and those subject to long-term unemployment and poverty.
[2] The US has had four significant periods of high inflation since WWII. The first, industrial demand inflation occurred with the massive Cold War development, including the interstate road system and the buildout of the telephone system. Then, the birth of the baby boom generation led to consumer demand inflation in the 1960s, with additional spending for Vietnam War. The third spike came from the global oil crisis due to the rise of OPEC in the 1970s and the redistribution of petrodollars worldwide via bank lending. In the US you also had the Baby Boomers buying homes for the first time. Globalization set in during the 1980s due to advances in air transportation, maritime containerization, and international communications – increasing supply and leading to meager inflation. We are now in the fourth age of US inflation due to COVID-19 spending and associated reduction of global shipping, as well as the shutdown of services and manufacturing capability.
[3] Money supply statistics from St. Louis FRED.
[4] The Trump government increased deficits almost as much as the Obama administration, except in half the time. It also spent more on stimulus in 8 months in 2020 than Biden did in all of 2021. But it had the COVID-19 virus and had to respond. Biden’s expenditures, while prescient because of Delta and Omnicron variants, was a bit more elective and Biden III was stopped by Sen Manchin (W-VA). The federal deficit totaled nearly $2.8 trillion in 2020, about $360 billion more than in 2021. So I consider it about equal and in total, about half the monetary part of inflation. The Fed, through QE, 0% reserve ratio, and near-zero interest by Trump appointee Jerome Powell added the other half.
[5] The Fed added $4.66 trillion to the money supply n 2020 and another $10 trillion up to February 2022. So that is a lot of money. Biden stopped the stimulus for the most part, but the Fed is still adding money.
[6] IRA interestingly from Wikipedia and Fed Funds Rate chart from St. Louis FRED.



AnthonybwAnthony J. Pennings, PhD is a Professor at the Department of Technology and Society, State University of New York, Korea. Before joining SUNY, he taught in the Digital MBA program at St. Edwards University in Austin, Texas. Originally from New York, he taught at Marist College and from 2002-2012 was on the faculty of New York University where he taught comparative and digital economics. His first academic job was at Victoria University in New Zealand. He was also a Fellow at the East-West Center in Honolulu, Hawaii.


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