Good news — mostly. When the pandemic paralyzed the economy in the spring of 2020 and lockdowns kicked in, businesses closed or cut hours and consumers stayed home as a health precaution, employers slashed a breathtaking 22 million jobs. Economic output plunged at a record-shattering 31% annual rate in 2020’s April-June quarter.
Everyone braced for more misery. Companies cut investment and postponed restocking. A brutal recession ensued.
But instead of sinking into a prolonged downturn, the economy staged an unexpectedly rousing recovery, fueled by vast infusions of government aid and emergency intervention by the Fed, which slashed rates, among other things. By spring of last year, the rollout of vaccines had emboldened consumers to return to restaurants, bars, shops, airports and entertainment venues.
Suddenly, businesses had to scramble to meet demand. They couldn’t hire fast enough to fill job openings or buy enough supplies to meet customer orders. As business roared back, ports and freight yards couldn’t handle the traffic. Global supply chains seized up.
With demand up and supplies down, costs jumped. And companies found that they could pass along those higher costs in the form of higher prices to consumers, many of whom had managed to pile up savings during the pandemic.
Critics blamed, in part, President Joe Biden’s $1.9 trillion coronavirus relief package, with its $1,400 checks to most households, for overheating an economy that was already sizzling on its own. Many others argued that the Fed kept rates near zero far too long, lending fuel to runaway spending and inflated prices in stocks, homes and other assets.