Washington Finally Gets It
Author: Greg Valliere
March 17, 2020
IT TOOK LONG ENOUGH, but Washington finally grasped yesterday that a life-altering crisis requires an unprecedented response. Some experts like Dr. Anthony Fauci knew that for weeks, but now this city’s establishment — President Trump, Congress, the Federal Reserve — are now on board.
FISCAL STIMULUS IS COMING: Two major bills are moving in Congress. The first, a House measure passed last Friday to aid victims — with paid leave, more generous employment benefits, etc. — should pass today or tomorrow in the Senate, after some tinkering to protect small business owners.
THEN COMES A MASSIVE STIMULUS BILL, costing several hundred billion dollars. This could take a week or longer, because the House and Senate have different views on bailouts and tax cuts, but we think it could be enacted by the end of March. There will be two key features:
Aid to ailing industries: The airline industry in particular will get assistance, worth at least $30 billion, mostly in the form of tax relief and loans, the hotel industry also will get aid, as will hospitals, but the main priority is to provide immediate stimulus for small businesses, which face ruin if a recession lasts well into summer.
Aid to individuals: Trump and his advisers still favor a payroll tax cut, which has received a lukewarm reception on Capitol Hill. Most lawmakers want an immediate cash infusion, not one that will come incrementally in paychecks; Mitt Romney has support for his idea of immediate $1,000 checks. A compromise could be a lump-sum check to cover payroll taxes paid through this spring, then a tax reduction for the rest of the year.
MORE FROM THE FED: The massive injection of liquidity from the Fed yesterday was accompanied by a crucial pledge from Jerome Powell that he is prepared to do more if necessary. The best piece this morning on the Fed’s tool kit is in the Wall Street Journal, by Nick Timiraos and Julia-Ambra Verlaine; their article makes it clear that there’s more the Fed can do.
A LITTLE OPTIMISM: In talking with strategists and traders at our parent company, AGF Investments, we come away with a major positive: the banks are extremely well-capitalized; the Dodd-Frank bill and an activist Fed will ensure that there won’t be a liquidity crisis. This is not like 2008, at least from a bank standpoint.
SO IT’S SINKING IN: An ugly recession is virtually certain, and this crisis may last into the summer. Donald Trump finally gets it, so we’ll try to lay off him. No, he doesn’t get a “10” on a scale of 1 to 10, as he said yesterday — but even Trump now realizes that desperate times require desperate measures.
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