Fiscal Stimulus Bazooka Is Imminent

Economic Blog

Policy makers in Washington, DC, worked over the weekend to try to put the finishing touches on a significant stimulus package to help cushion the economic and financial blow being delivered by the COVID-19 pandemic. 

The Federal Reserve (Fed) is “all in” already. After Monday’s announcement, which we will discuss in another post , it is fair to say there is little more the central bank can do to support economic growth and financial markets while we fight the COVID-19 global pandemic. They have done a lot, and that’s an understatement.

It looks like we are headed toward loans from the Fed to Main Street and direct government equity stakes for affected companies, ideas that were unfathomable just a few weeks ago.

Now it’s Congress’s turn. As of Monday morning, congressional Democrats were not on board with the massive proposed package, reportedly worth about $1.5 trillion (roughly 6% of US gross domestic product), delaying an agreement to allow for some more horse trading. We hope a deal will be struck shortly after the Senate reconvenes at 1 p.m. ET today.

Importantly, the failure of the Senate’s procedural vote Sunday night followed the typical path of these negotiations and likely will lead to more compromises today, including more worker protection clauses and more restrictions on business loans backstopped by the US Treasury. Policymakers understand the importance of providing economic assistance as quickly as possible, including support for the healthcare system. It’s also about preserving as many jobs as possible over the next 60 to 90 days, using businesses small and large as a conduit to do so, while doctors work on treatments and a possible cure.

“A $1.5 trillion stimulus package sounds like a lot, and it is,” noted LPL Financial Equity Strategist Jeff Buchbinder. “But given the unemployment rate might be headed to double-digits and many impacted businesses won’t survive through the spring without some help, it probably won’t be enough.”

As of now, we don’t know the specifics of the package, but we know it will include direct payments to and tax relief for consumers, expanded unemployment benefits, a substantial emergency lending facility backed by the Treasury to help cushion the blow for impacted businesses, and support for the healthcare system.

We continue to closely track developments in Congress, as any stimulus package would play a key role in countering the halt in economic activity. Mitigating the impact on businesses will help preserve jobs and set up a stronger recovery this summer as this crisis potentially clears.

 

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