A Stimulus Bill Won’t Move Quickly
Author: Greg Valliere
March 10, 2020
THERE’S A CONSENSUS ON CAPITOL HILL that Washington has to do something, but there’s no consensus on what, or how much. Many members of Congress want to leave town; they work in a virtual petri dish, with more members likely to self-quarantine in coming days.
SO WE WOULD RECOMMEND LOWERING EXPECTATIONS that a truly significant stimulus bill can pass any time soon. First, the White House has to convince Republicans that a payroll tax cut is a good idea; many disagree. And the GOP is lukewarm about big new spending plans for programs like paid sick leave, major aid to sectors like airlines, etc.
MANY DEMOCRATS, ON THE OTHER HAND, subscribe to the famous (or infamous) line from Rahm Emanuel, who once proclaimed that “you never let a serious crisis go to waste.” They have a long list of spending goals that now could pass, even if it means negotiating with a president they despise.
WHAT CAN PASS: A temporary payroll tax cut will win grudging GOP support; it could cost upwards of $300 billion. Democrats will win funding to support sick leave, more generous unemployment benefits, additional food stamp spending, and other aid to victims. Both parties will win temporary aid for companies, especially in the tourism industry, and perhaps for airlines. A proposal to temporarily waive all tariffs has not gained traction.
THIS APPARENTLY WILL BE ACCOMPANIED by more monetary stimulus, as the Fed provides vastly more liquidity and considers loosening lending standards. Since the market almost unanimously expects a 50 basis point rate cut later this month — and even more later in the spring — the Fed apparently is prepared to waste its remaining bullets, a risky move in our opinion, but the markets are counting on it.
A WASHINGTON RESPONSE TO THIS CRISIS is mandatory, but in truth relief for the markets may come from elsewhere: first, signs that new cases of the virus are diminishing, which is clearly occurring in China; second, a truce between Saudi Arabia and Russia on oil production; and third, a mammoth de facto tax cut because of cheap gasoline and a massive refinancing boom. Show us progress on those three issues, and we’ll get bullish in a hurry.
IN THE MEANTIME, THE GOAL IN WASHINGTON should simply be not making this crisis any worse, through confusing communication. A modest stimulus package, hopefully enacted by the end of this month, can’t hurt, but this morning the markets are viewing a stimulus bill as a panacea, and that’s unrealistic.
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A DIVERSION FROM THE CRISIS will come this evening as results pour in from several primary elections. We expect Joe Biden to win the most important race — in Michigan — while easily winning Mississippi and modestly prevailing in Missouri. Bernie Sanders could win in Washington state.
THESE RESULTS COULD EFFECTIVELY END THE PRIMARIES, although Sanders may hang on until some big elections a week from now in Illinois, Ohio and Florida. An overwhelming majority of African-American support for Biden will make the difference in all of these states.
DEMOCRATS ARE MORE THAN SIMPLY RESIGNED TO BIDEN, they like him and think he has a chance to defeat Trump. Perhaps, but Republicans are planning on a two-pronged attack. First, the Hunter Biden hearings are about to begin; second, Trump and his allies have flatly asserted in recent fundraisers that Biden is senile.
THE FEROCITY OF ATTACKS ON BIDEN may backfire on Republicans. And their electoral prospects are vastly complicated by the pandemic — Trump never planned on the coronavirus, and he certainly never expected to be at risk of actually contracting it.
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