Economic Fallout: Here Comes Congress!

The massive U.S. stimulus bill that President Trump signed last week is designed to help individuals and businesses facing disruption caused by the coronavirus. However, Congress may have to do more in the months ahead.

As we wrote recently, we thought additional fiscal stimulus was a matter of when, not if, given the growing economic and political imperative for the U.S. Congress to act. Fast forward a week – and what we thought would be a maximum $1 trillion package ballooned to $2.2 trillion, the biggest fiscal stimulus bill Congress has ever passed, and one that policymakers hope will stave off the long-term consequences of growing economic disruption associated with efforts to contain the coronavirus.

What’s in the bill?

The nearly 900-page bill addresses relief for an expansive range of stakeholders – from individuals, children, and small businesses to large industries, states and municipalities, and financial markets. Some highlights:

  • $350 billion for small businesses with 500 employees or fewer that will include eight weeks of cash assistance through loans, much of which will be forgiven if the company keeps workers on its payroll.
  • $500 billion for the Treasury’s Exchange Stabilization Fund, including up to $454 billion to be used as equity to support a series of forthcoming Federal Reserve credit facilities designed to provide liquidity to the financial markets across various industries (which is likely to be levered up to 10 times by the Fed, amounting to more than $4.5 trillion of market firepower). Of this, $50 billion is earmarked for passenger airlines (divided between loans and grants), $8 billion for cargo carriers, and $17 billion for “businesses critical to maintaining national security".
  • $500 billion for individuals in the form of one-time payments of $1,200 per adult, $2,400 per couple, and $500 per child; the amounts begin phasing out gradually for individuals earning more than $75,000 and married couples earning over $150,000.
  • $260 billion for emergency unemployment insurance, which includes funding for an additional 13 weeks of coverage (up to $600 per week) and covers part-time, self-employed, and gig economy workers.
  • $150 billion for healthcare, including more than $100 billion for hospitals and public and nonprofit health organizations.
  • $150 billion for state and local governments.
  • Odds and ends, including the ability for borrowers of federally guaranteed mortgages to request forbearance for up to 12 months, student loan relief for borrowers of federal loans, and the waiving of tax penalties for those who draw from their retirement accounts for virus-related reasons.

Will it help?

Along with the actions taken by the Federal Reserve, we think these fiscal measures will prove to be a powerful backstop to the U.S. economy. The fiscal stimulus won’t prevent a recession as the level of business activity drops due to mandated containment measures. Over 24 states have now issued nonessential business closures, affecting 10% of the labor force. However, by providing households and businesses with funding to bridge the gap in cash flows while the virus subsides, policymakers are helping to ensure the economy can stage a swift recovery and avoid the longer-term economic damage that can result from a wave of bankruptcies and a rise in the number of long-term unemployed.