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How Has COVID-19 Government Stimulus Spending Impacted USD Inflation?

March 8, 2024 | By

StoneX is nonpartisan and does not endorse political candidates. The purpose of this blog post is to provide objective, unbiased information on what we believe could happen in the markets. The content is not intended to convey a preference or state a position in support of any candidate, and the sentiments expressed do not necessarily reflect the viewpoints of our team members.

Throughout 2020 and the first half of 2021, the U.S. government injected roughly $5.6 trillion in direct COVID-19 fiscal stimulus into the economy. Subsequently, traders, investors, and academics all questioned whether sweeping USD inflation was inevitable.

Let’s take a look at the 2020-2021 U.S. COVID-19 stimulus packages and their impact on the U.S. dollar.

COVID-19 and Fiscal Policy

The March 2020 onslaught of COVID-19 certainly qualifies as an economic Black Swan event. The contagion prompted widespread industrial shutdowns, quarantines, and travel bans―all unprecedented in modern history. As a result, extreme volatility hit the financial markets and prompted immediate corrections in risk assets, currencies, and commodities.

For March 2020, steep losses in the Dow Jones Industrial Average (-15.2 percent), S&P 500 (-12.51 percent), and NASDAQ Composite (-10.12 percent) captivated the financial world. Amid the market chaos, Main Street felt the pain as U.S. unemployment spiked from 3.5 percent to 14.7 percent between February and April 2020.

To mitigate short-term COVID-19 economic fallout, the U.S. government adopted an overtly aggressive fiscal policy. Here are the major relief programs that had an impact on USD inflation from March 2020 to May 2021:


Signed into law on March 27, 2020, the CARES Act appropriated $2.3 trillion for COVID-19 relief. CARES allocated capital for direct cash payments to households, loans and grants to businesses, and supplemental unemployment benefits. It stands as the largest single relief package in U.S. history.

Relief Package 4

On December 27, 2020, President Donald Trump signed the $900 billion Relief Package 4 into law. The package included direct payments to qualifying citizens, an extension of enhanced unemployment benefits, transportation funding, and small business assistance.

The American Rescue Plan

Approved by Congress and signed by President Joe Biden, the American Rescue Plan directed $1.9 trillion in funds toward COVID-19 relief. Included were provisions for direct payments to citizens, tax credits, expanded unemployment insurance, and aid for small businesses.

COVID-19 Stimulus: Market and USD Reaction

The three relief programs represent the largest one-year influx of U.S. government fiscal stimulus in history. So, what were the impacts on the markets and USD inflation? For risk assets such as equities and cryptocurrencies, the stimulus aided a monumental bull run. Prominent examples are the rallies in the NASDAQ Composite (+88.1%) and Bitcoin (+877%) between April 1, 2020, and May 3, 2021.

However, for the U.S. dollar, the results during the same period were much different:

  • Forex: Following a March 2020 spike, the USD consistently lost value against most of the global majors. Key moves were in the EUR/USD (+9.1 percent), USD/CAD (-12.6 percent), and USD/CHF (-5.1 percent).
  • Commodities: When consumption resumed, crude oil (+$44.60 per barrel), corn (+343’8 per bushel), and soybeans (+663’6 per bushel) all posted steep rallies. Spot gold followed suit, gaining $194 per ounce (12.3 percent) on the back of a devalued USD.
  • USD Index: The USD Index saw a steady 14-month decline, falling from 99.010 to 91.297, a loss of 7.79 percent.

In a little more than 12 months, the U.S. dollar went from being a bonafide safe-haven asset to a lagging major global currency. Although a weaker dollar meant stronger commodity and risk asset pricing, it also meant growing USD inflation. The uptick became evident in March 2021, as core personal consumption expenditures (PCE) prices jumped 1.8 percent year-on-year. At the very least, sweeping COVID-19 stimulus was a contributing factor in the periodic devaluation of the U.S. dollar.

Understanding USD Inflation Is a Tricky Business

The concept of USD inflation is complex and requires a strong knowledge base to understand. We’ve talked about how COVID-19 government fiscal stimulus has contributed to a diminishing greenback. Of course, there are many other factors to consider when evaluating the COVID-19-era performance of the U.S. dollar. Among the largest are the Fed’s policy of “unlimited QE” and forex market behavior. So, while it’s fair to say that fiscal stimulus boosted inflation, it wasn’t the only market driver.

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