Virtually everyone in Washington agrees that another mega-sized stimulus bill is needed to keep the tenuous US economy in a recovery mode and prevent economic cardiac arrest. Time is of the essence. The expanded unemployment benefit stops at the end of July, increasing the financial pressure on our most vulnerable. The Congressional summer vacation begins on August 7th, which will motivate everyone to get a bill done. New York Times
The challenge? There is substantial disagreement over the stimulus priorities. Washington Post Republicans are not yet in full agreement internally but will insist on liability protection for employers who encourage or require workers to return to work. Democrats want a massive stimulus package ($3 trillion-plus?) with extended unemployment benefits and substantial aid for hospitals, state and local governments, and education. The White House is arguing for a payroll tax cut. Greg Valliere
We can sit back and watch the Washington sausage being made over the next two weeks. This will be Washington at its best and worst. The rhetoric may get ugly, but we are optimistic that a deal will get done. Expect compromise. Agree or disagree with their policies, the key players (i.e., McConnell, Pelosi/Schumer and Mnuchin) are all dealmakers. Some thorny issues will need to be resolved, including whether school funding will be contingent on return to campus/school rooms to force reopening and whether unemployment benefits need to be modified to incentivize a return to work. Look for a bill with a final tab closer to $2 trillion than to $1 trillion (i.e., deficit “smeshaficit”).
Could we get a modest relief rally in the stock market when a deal is reached? Or is the prospect of a large stimulus package already baked into current prices? The devil is likely to be in the details, as the markets will assess the impact of the various provisions. But a failure to reach agreement would not be good.