Article written by Tyler Durden
As Goldman’s Sachs chief economist Jan Hatzius writes Wednesday morning, stimulus odds are now bottoming out following following President Trump’s announcement on twitter that talks with Speaker Pelosi have ended.
Hatzius believes that very limited fiscal measures are possible on a “piecemeal basis”, like airline aid for example, but not some of the larger items such as stimulus payments that the President has suggested Congress consider as a standalone policy.” DJT has tweeted the opposite, but experts say it is unlikely to get accomplished.
His conclusion, as we have said all along is that “more substantial fiscal support is likely post-election and will depend on the election outcome.”
Bank of America’s Post-Election Stimulus Scenarios:
Supersized ($3.5tn)
This scenario assumes the Democrats sweep the November elections and pass a bill that closely resembles the $3.4tn Heroes Act passed by the House Democrats in May. The bill would include a second round of stimulus checks, $1tn in State and Local aid paid out in two installments and an extension of the $600/week additional unemployment. Even under a Democratic sweep, the likelihood of a bill of this magnitude passing is low given that the economic recovery has been much faster than what was anticipated in May.
Baseline ($1.5tn)
This is our current assumption and assumes that Biden wins the presidential election and Congress control remains split. Similar to the extreme scenario, the bill is expected to include another round of stimulus checks, $500bn in aid for state and local governments and an extension of the additional unemployment benefits but at a lower rate. Expect a similar sized bill if Trump were to be reelected and Congress control remains split.
Skinny ($0.5tn)
This scenario assumes a Republican sweep of the elections, Under this scenario, the Republicans would move forward quickly with a skinny deal targeted primarily at money for the PPP program and unemployment insurance. Expect an earlier passage than the other two scenarios even though Democrats would still hold the House until January.
With these scenarios in mind, here’s what Goldman has to say about the situation:
1. President Trump’s announcement on twitter that he has instructed Secretary Mnuchin to end talks with Speaker Pelosi on a COVID relief bill likely signals that the odds are very low that Congress will pass a large fiscal package before the election (if at all). While we had not expected further pre-election fiscal relief, these developments are still surprising, for two reasons. First, the President himself had pressed publicly for an agreement just a few days earlier, so this represents an abrupt shift. Second, one would expect politicians in both parties to want to continue negotiations, if only to maintain the appearance of progress as the election approaches. While President Trump’s decision to call off further negotiations might be an attempt to put political pressure on Speaker Pelosi to compromise, this seems unlikely to produce an agreement on a large fiscal package.
2. The focus now looks likely to turn to “piecemeal legislation”. Last week, Speaker Pelosi indicated she would be willing to put a standalone bill providing additional relief to airlines on the House floor for a vote. In addition, on Tuesday (Oct. 6), President Trump endorsed standalone legislation to provide more funding for the Paycheck Protection Program (PPP) and another round of stimulus payments ($1,200 per individual). However, the President already supported these policies, so while this represents a shift in legislative strategy, it does not represent a change in position.
3. A piecemeal approach might allow for only a very limited amount of fiscal relief. Since the White House and Democratic leaders appear to support standalone airline relief legislation, enactment of another $25bn in airline aid looks increasingly likely. Passage of standalone legislation authorizing another round of PPP loans for hard-hit businesses is possible but not likely, in our view. A standalone PPP bill is possible as members of both parties support it, but it is unlikely because lawmakers in both parties would likely want to attach additional measures to such a bill, like a renewal of the expired extra $600/week unemployment benefit, or aid to schools. If so, a simple standalone bill could quickly become a renewed negotiation over a broader fiscal package. A standalone bill to authorize another round of stimulus payments to individuals is even less likely, as neither party has made this a priority even though both parties appear to support such payments as part of a broader package.
4. Broader fiscal relief looks like a post-election issue. If the election results in a status quo election outcome (i.e., Republican White House and Senate, Democratic House) then Congress might pass some fiscal relief measures in a lame-duck session of Congress before the end of the year, including further PPP funds, a partial extension of the extra unemployment benefit, and money for schools. By contrast, if Democrats win control of the White House and Senate, we would expect Congress to enact a much larger fiscal package, as we recently described, but we would not expect it to pass until early 2021.
Stay tuned for an interesting next six weeks…
Works Cited:
https://www.zerohedge.com/markets/plan-b-what-goldman-thinks-happens-next-stimulus-fight