With a divided government likely, chances of a big economic relief plan wane
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As of Wednesday afternoon, the makeup of the U.S. Senate remains in doubt, but it’s seeming less and less likely that Democrats will take control of the upper chamber, though they are on track to keep control of the House of Representatives.
Translation: divided government.
Had there been a clear blue wave over the White House and Congress, Ian Shepherdson, chief economist at Pantheon Macroeconomics, expected lawmakers to spend $2 trillion to juice the economy.
That’s the same amount provided by the Coronavirus Aid, Relief and Economic Security Act passed in the spring, which supplied economic relief checks for people out of work, families and small businesses.
Now, he said he expects a far smaller boost.
“As we saw in the spring, the CARES Act put money into people’s pockets extremely rapidly because of the one-time stimulus payments, and because of the enhanced unemployment benefits, $600 a week to everybody,” Shepherdson said.
He said congressional spending works much faster, and in a more targeted way, than stimulus from the Federal Reserve.
“From an economist perspective, it’s a no brainer,” he said.
The Fed is meeting Wednesday and Thursday, and already slashed short-term interest rates in March.
“The question then becomes, what exactly can they do?” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank Securities. “They’ve already cut interest rates to zero.”
Every month, the Fed buys $120 billion worth of bonds to push down longer-term interest rates. Going forward, Luzzetti said the Fed could pledge to buy more bonds or signal it’s willing to keep buying for a long time.
“The intent would be to put more downward pressure on interest rates, hopefully ease mortgage rates as well, to provide as much stimulus as they can to the economy in the absence of fiscal,” Luzetti said.
It’s important how the Fed communicates its plans. Liz Ann Sonders, chief investment strategist at Charles Schwab (a Marketplace underwriter) said this spring the Fed’s messaging settled nervous markets.
“Simply the Fed saying, ‘We’ve got the tools, we’ve got the ammunition,’ sort of pulling out the bazooka but not necessarily needing to use it, we saw the power of that. So my guess is, they would try to sort of use their words, to put it very bluntly,” she said.
Still, Fed Chair Jerome Powell has said the Fed needs help from Congress. In a speech last month, he said too little stimulus “would lead to a weak recovery.”
COVID-19 Economy FAQs
Can businesses deny you entry if you don’t have a vaccine passport?
As more Americans get vaccinated against COVID-19 and the economy begins reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.
Give me a snapshot of the labor market in the U.S.
U.S. job openings in February increased more than expected, according to the Labor Department. Also, the economy added over 900,000 jobs in March. For all of the good jobs news recently, there are still nearly 10 million people who are out of work, and more than 4 million of them have been unemployed for six months or longer. “So we still have a very long way to go until we get a full recovery,” said Elise Gould with the Economic Policy Institute. She said the industries that have the furthest to go are the ones you’d expect: “leisure and hospitality, accommodations, food services, restaurants” and the public sector, especially in education.
What do I need to know about tax season this year?
Glad you asked! We have a whole separate FAQ section on that. Some quick hits: The deadline has been extended from April 15 to May 17 for individuals. Also, millions of people received unemployment benefits in 2020 — up to $10,200 of which will now be tax-free for those with an adjusted gross income of less than $150,000. And, for those who filed before the American Rescue Plan passed, simply put, you do not need to file an amended return at the moment. Find answers to the rest of your questions here.
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