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Thinking back to the start of the COVID-19 pandemic, it’s easy to forget how little anyone knew. No one was certain of the virus’ origin. No one even knew how it spread, whether by the common items everyone touches or through the air itself.

Òscar Jordà, a professor of economics at ɫ��ɫ, knew as little as anyone. But in his role as an economist with the San Francisco Federal Reserve, he estimated the likely economic impacts of the ensuing pandemic. His estimates would help inform the national response sought to keep the economy from crashing.

Looking back now, it’s clear the deck was stacked against everyone from the start. The pandemic would prove different in fundamental ways from the Spanish Flu pandemic that took place a century ago. Any fiscal response would be hobbled by the echoes of the global recession that began in 2008.

“For an event like a global pandemic, you have economics and economic history to anticipate what stimulus is needed and what effect that stimulus could potentially have on an economy,” said Jordà. “But nobody actually knows what's going to happen.”

He and colleagues determined that the most likely outcome of COVID-19 was weakness in the U.S. economy that could last for decades. And truly, the economic effects continue today.

Statistical modeling for unprecedented times

The COVID-19 virus first emerged in China in December of 2019. In March, 2020, the World Health Organization declared the outbreak a global pandemic. Since then, the virus has  people worldwide, according to the National Foundation for Infectious Diseases.

But in 2020, it wasn’t clear how the pandemic might affect the U.S. economy. Jordà’s economic estimates would advise the president and CEO of the San Francisco Federal Reserve, which is part of the Federal Reserve Board of Governors in Washington D.C., on a national monetary response. Protecting jobs and keeping inflation in check would take a delicate balancing act.

The U.S. Federal Reserve’s main fiscal tool is an interbank interest rate, which is the interest rate at which commercial banks lend and borrow with each other. In turn, this rate affects rates throughout the economy. A higher rate can cool off inflation in an overheated economy. A lower rate encourages more borrowing, more investments and usually more hiring.

Jordà and his ɫ��ɫ economics colleagues Associate Professor Sanjay Singh and Distinguished Professor Emeritus Alan M. Taylor began an analysis of the long-term impacts of pandemics. They looked back at major pandemics, wars and economic productivity since the 14th century.

The COVID-19 pandemic really had no precedent, however.

“The pandemic was that far from events that we’ve observed in the past.”

Echoes of the Great Recession

The national fiscal response was significant. The American Rescue Plan Act of 2021 disbursed a total of $1.9 trillion in the form of direct funding to states, counties, cities, small businesses and individuals. It was the biggest economic stimulus since the years following World War II.

The total package would dwarf the response to the financial crisis of 2008 that began with the housing market collapse, in which the . The  was below $1 trillion. Much of that funding was used to prop up many of the same institutions that sparked the market collapse by loosening mortgage lending practices and selling risky financial instruments.

“I think we overlearned the lessons from the financial crisis. I think the perception was that the government had under-helped the economy and had bailed out the banks but provided no support for borrowers.” — Òscar Jordà

Years later, Jordà said, many would believe this level of stimulus for the 2008 crisis had been too conservative. During the 18-month  that followed, the U.S. national gross domestic product fell by 4.3% and unemployment more than doubled to 10%. It was the longest-lasting and deepest period of economic contraction since World War II.

Taming inflation during a pandemic

The challenge for the Federal Reserve during COVID-19 was different. The massive inflow of money in 2021 was a recipe for inflation. People couldn’t leave their homes and spend at restaurants or go on vacations, but UPS and FedEx trucks filled neighborhoods with everything from Crocs and sweats to home gym equipment bought online.

When the first signs of inflation did arrive, the Federal Reserve still faced tremendous uncertainty. Raising interest rates might blunt the benefits of the government’s economic stimulus.

There was also uncertainty about the  that began in December of 2020. No one knew how widespread uptake would be nor its effectiveness. Vaccine hesitancy ended up taking root so deeply that it .

The Federal Reserve ultimately decided not to raise interest rates right away. By 2022, inflation reached a  compared to an annual target of 2%.

“It was a difficult position, because they're operating, effectively, in the dark,” said Jordà. “The feeling at the time was well let's wait and see but, of course, now, with the benefit of hindsight, it looks like the Federal Reserve was asleep at the switch.”

Looking back with 20/20 vision

Why didn’t the U.S. economy stagnate as Jordà and his coauthors had expected? One of the big differences between COVID-19 and past pandemics was who died. During the Spanish Flu pandemic that began in 1918, the majority of the 50 million people who died worldwide were of working age.

A century later, the people most likely to die from the COVID-19 pandemic a century later were the elderly.

“That was a big departure from previous pandemics,” said Jordà. “At the time when we wrote the paper, we didn't know that.”

The post-pandemic recovery has also been complicated, said Jordà. Leading up to 2025, the combined numbers on jobs, consumer spending, income and other measures that define the economy all looked strong. Inflation was coming down. Some experts were predicting a  for the economy, meaning that inflation would return to roughly 2% without causing a recession.

However, a lot of people who finished college just before the 2008 housing crisis continued to struggle for reasons completely outside of their control. Jordà described how when these people entered the workforce, many were let go right at the start of their careers. The pandemic brought another round of layoffs as well as a broader economic reconfiguration that increased automation and cut jobs.

“So now we're talking about people in their 40s who have families who've basically had two hits to their career path, and on top of that now they're experiencing inflation so they're essentially getting another salary cut,” said Jordà.

The conclusion from Jordà’s analysis in 2020 took these compounding hardships into account. For everyone who survived, the impacts of the pandemic continue today.

“These are, in a sense, dramatic events from an economic point of view,” said Jordà. “You want to understand what happened to society as time goes by.”