How has Covid 19 impacted the Velocity of Money?

Covid 19 has impacted the sluggish pace of money moving around the system but the stimulus checks and monetary policy has helped. In the graph below notice that the rate at which people were spending money quickly rebounded as stimulus checks were received at the end of March.

Based on Private Sector Data”, by Raj Chetty, John Friedman, Nathaniel Hendren, Michael Stepner, and the Opportunity Insights Team. June 2020. Available at:

When surveyed consumers generally show that the top 10% of households spend 70% of their after-tax income, while the bottom 90% spend 100%. (Source: During this crisis, this trend is exacerbated as low to middle earners spend a larger share of their income on essentials; food, clothing housing whereas high income earners spend a larger share on areas that can be easily cut back in a social distancing environment, such as entertainment, hotels and apparel.

Stimulus checks and expanded unemployment benefits through the CARES Act have helped low and middle income spending from falling further. If spending were to drop further and the velocity of money were to slow without another infusion of fiscal support we could see disinflation not inflation. While during periods of disinflation stocks may rise longer term this is a recipe for disaster. Disinflation means that spending slows. The result? Sluggish economic growth, production slow downs, layoffs and salary reductions, increasing unemployment, an unhappy economy. The potential for a recession is greatly heightened.