We’ve recovered. Growths up.

Federal policymakers enacted substantial relief and recovery measures in 2020 and 2021 to support the economy and relieve hardship. These measures helped fuel an economic recovery beginning in May 2020 that made the deepest recession in the post-World War II era also the shortest. (According to the National Bureau of Economic Research, the acknowledged arbiter of business-cycle dating, the contraction in economic activity marking the pandemic recession lasted only two months: March and April 2020.) The expansion in economic activity in the recovery proved to be stronger and faster than initial projections.

These projections may have been colored by what happened in the Great Recession of 2007-2009, which at the time was by far the worst recession since the Great Depression and the recovery from which was disappointingly slow, with high unemployment lasting years after the economy began to grow. But the causes of and policy responses to the two recessions were quite different. In particular:

A global financial crisis in 2008 turned what started out as a mild recession into the Great Recession, while a global public health crisis precipitated the pandemic recession.

The recovery from the Great Recession was impeded by the lingering effects of a burst housing bubble and banking crisis on households’ income and wealth and on bank lending, which depressed growth in consumer spending and business investment. By contrast, the course of the pandemic economy was influenced by ebbs and flows in virus caseloads and the extent of voluntary and official lockdowns and social distancing measures to address the virus; when the health situation improved, business and consumer activity began to pick up quickly.

Policymakers’ fiscal response to the Great Recession, notably the Troubled Asset Relief Program (TARP) and the 2009 Recovery Act, was large for its time and effective at arresting an even sharper downturn. But it was neither large enough nor sustained long enough to promote a rapid recovery with stronger job growth.

The response to the pandemic recession, including the CARES Act and three other measures in March and April 2020, a December 2020 package, and the 2021 American Rescue Plan, was much larger. This suggests that policymakers had learned key lessons from the Great Recession experience.

The Federal Reserve took similar monetary policy steps in both recessions, cutting its target interest rate for monetary policy effectively to zero and implementing large-scale asset purchases (quantitative easing). Without sufficient help from fiscal measures, however, expansionary monetary policy was unsuccessful at stimulating a rapid recovery or raising the inflation rate to the Fed’s policy target of 2 percent following the Great Recession. In contrast, these policies paired with strong fiscal measures supported a much faster recovery from the pandemic recession.

In the recovery from the Great Recession, the Fed’s expansionary monetary policy was consistent with achieving both of the Fed’s dual-mandate goals of high employment and stable prices, which required lowering unemployment and raising the inflation rate. Initially this also was true in the recovery from the pandemic recession. But the emergence of inflation in 2021 created a more challenging environment for monetary policy, requiring efforts to bring down inflation while maintaining high employment. The Fed reversed its expansionary monetary policy in March 2022 and began raising its short-term interest rate target and reducing its holdings of long-term assets (quantitative tightening). The Fed has stressed that it will take the steps necessary to keep higher inflation expectations from becoming entrenched.

This chart book tracks the pandemic economy, looking at both the macroeconomics (economic growth, employment, wages, and prices) and how different demographic groups have fared. Overall, the policy response was strong and effective in promoting a rapid economic recovery. From a macroeconomic standpoint, the economy has largely healed, and the groups that experienced the largest losses in the recession have recouped a substantial share of their losses. The overall number of jobs rose above pre-pandemic levels in August 2022, but was still below what it likely would have been with normal job growth and no pandemic. Even amid strong job growth, challenges remain to achieving a full and equitable recovery and ongoing economic expansion, especially with the emergence of high inflation in 2021 and rapidly tightening monetary policy in 2022.