It’s looking increasingly unlikely that the second coronavirus stimulus package will pass before the end of this year as Senate Majority Leader Mitch McConnell indicated.
Depending on the election outcome, the passage of the bill could be fast-tracked or it could be delayed until a further date. If it’s a single-party sweep, the bill is likely to pass soon after the election.
However, if the election is contested or each chamber of Congress is controlled by a different party, the passage of the bill may be delayed further.
This drawn-out back and forth by policymakers may prove to be a costly mistake, of which economists are becoming deeply concerned and are now warning of a repeat of the lengthy recovery that followed the 2008 financial crisis, which was partly attributed to the premature withdrawal of fiscal support.
Following the unanimous passage of the CARES Act, the economy had started to rebound at a rate that was higher than expected. The CARES Act had successfully thwarted the early effects of the crisis and prevented a recessionary “downward spiral.”
The rapid recovery that was recorded in the spring and summer is not likely to continue in the coming months and already there are signs of a slow recovery, evident in the latest labor market numbers.
The U.S. economy added 661,000 jobs in September, which was marked as being lower than the average of 1.6 million jobs that were regained in the months of July and August.
As of September, the United States has only recovered 11.4 million of 22.2 million jobs it lost between February and April. As coronavirus cases rise across the country, a further decline in the recovery is likely.
At a conference earlier in October, Chair of the Federal Reserve Jerome Powell voiced concerns about a prolonged slow recovery, which he said would further amplify the already problematic disparities in the economy.
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” he said about fiscal policies.
Powell has been reiterating the need for an additional fiscal response in congressional hearings and elsewhere since May of this year – and that says something about the urgent need for the second stimulus bill.
Many policymakers, notably in the Republican party, oppose broad government spending because they’re worried about the growing national debt.
Powell indicated that worries about adding more to the national debt are warranted but given the scope of this downturn, it is less of a concern now. In fact, Powell argued that if fiscal policy interventions do prove to be greatly needed, then they will not end up going to waste.
In an opinion piece for Bloomberg, Bill Dudley, a senior research scholar at Princeton University’s Center for Economic Policy Studies, who formerly served as the president of the Federal Reserve Bank of New York, suggested that the Federal Reserve has exhausted most of its monetary policy tools and can’t do much more to stimulate the economy, given the near-zero
interest rates and already accommodating financial conditions. He argued that even if the Federal Reserve did more, it wouldn’t provide significant support to the economy and echoed Powell’s call for more fiscal stimulus.
Despite the outcome of the election, it is imperative that the policymakers take note of the lengthy recovery of the financial crisis and pass the much-needed stimulus package before it’s too late.
