Odds are increasing that there won’t be another fiscal stimulus package before Jan. 20, Inauguration Day, which is raising fears that the nascent recovery, already under pressure from a sharp increase in coronavirus infections, will stall and possibly reverse.
The Trump administration, according to news reports, has retreated from negotiations on a new economic relief package, leaving Senate Majority Leader Mitch McConnell, R-Ky., in charge of fashioning a deal with House Speaker Nancy Pelosi, D-Calif., and the two remain far apart on a compromise.
On Thursday, McConnell repeated his support for a $500 billion package that failed to pass the Senate previously, while Pelosi and Senate Minority Leader Chuck Schumer, D-N.Y., at a news conference continued to press for the $2.2 trillion Heroes Act, which the House of Representatives passed last month.
Also on Thursday, the U.S. set another daily record for new COVID-19 cases — more than 160,000 — bringing the total number of infections to 10.6 million, and the death count grew to 243,000 as hospitalizations related to the virus also set a new record.
“The short-term economic outlook will be dominated by what happens with the pandemic,“ said John Ricco, senior analyst at the Penn Wharton Budget Model, which provides nonpartisan analysis of federal budgetary issues. “It is a dire situation that will continue to get worse without any changes in the course of action,” he added, speaking at a virtual press briefing about the economic implications of the 2020 election.
Federal Reserve Chairman Jerome Powell once again sounded the same alarm bell in a European Central Bank webcast Thursday, but this time with more urgency. “With the virus now spreading, the next few months could be challenging,” said Powell. “We’ve got new cases at a record level, we’ve seen a number of states begin to reimpose limited activity restrictions, and people may lose confidence that it is safe to go out…. My sense is that we will need to do more, and Congress may need to do more as well on fiscal policy,” Powell said.
The Fed chief is also worried about the long term. “Even after the unemployment rate goes down and there is a vaccine, there is going to be, probably, a substantial group of workers [who] are going to need support as they find their way in the post-pandemic economy because it’s going to be different in some fundamental ways,” he said.
If Congress can’t agree on a new economic relief package before year-end, some key provisions of the CARES Act that haven’t already expired — the Paycheck Protection Program already has — will end, along with many of the Federal Reserve’s lending facilities that are backed by the U.S. Treasury with funds from the CARES Act unless the Treasury acts preemptively.
Among the provisions set to expire are the moratoriums on federal student loan payments and on foreclosures and evictions for homeowners with federally insured single family mortgages.
Also set to expire at year-end is the employee retention tax credit for employers whose businesses had experienced significant declines in gross receipts or had to fully or partially suspend operations during the pandemic on orders from a governmental authority.
“We’re monitoring the fiscal response closely, as a premature retrenchment could set back an economic restart that has so far surprised to the upside,” wrote strategists at BlackRock Investment Institute led by Jean Boivin, its head in their weekly commentary.
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