The U.S. Senate approved a long-waited 2-trillion-dollar relief package on Wednesday night, an attempt to blunt the economic fallout of COVID-19, as some analysts expect the country is facing a recession.
The upper chamber passed the bill in a 96-0 vote, well above the 60-vote threshold. The package needs to be approved by the House of Representatives, before being sent to President Donald Trump’s desk for his signature.
The bill, aimed at cushioning the economy from COVID-19 ravages, will provide small businesses emergency loans, business tax breaks, unemployment benefits expansion, 1,000-dollar-plus direct payments for working Americans, government aid for industries such as airlines and hotels, as well as more support for hospitals and state and local governments.
Calling it an “emergency relief”, Senate Majority Leader Mitch McConnell, a Kentucky Republican, said at the Senate floor earlier in the day that the package will “help the people of this country weather this storm.”
The Senate approval of the bill came a few hours after the White House and Senate leaders reached a deal early Wednesday morning on the stimulus plan, following days of strenuous negotiations between Republicans and Democrats.
McConnell, who lashed out at Democrats for their “cynical partisanship” while lawmakers were tussling over the details, later lauded bipartisan efforts to improve the bill from the draft version, which was unveiled Thursday.
Government bailout for hard-hit companies and industries was one of the sticking points in the negotiation. Democrats insisted oversight provision be put in place, recipients be immediately disclosed, and companies that receive loans not engage in stock buybacks for a certain period of time.
Some Republican senators, including Lindsey Graham of South Carolina, voiced discontent over the expansion of unemployment insurance benefits, arguing that this could discourage people from returning to work. They requested to cap bolstered unemployment benefits at 100 percent of workers’ salaries, but a related amendment failed to pass.
In the short run, the stimulus will not make a great difference to the GDP figure, Brookings Institution Senior Fellow Barry Bosworth told Xinhua. “But it can relieve some personal suffering and ensure that there is not a major liquidity crisis.”
“The fiscal program has a structure that most economists would favor, but the aggregate economic effect will have to wait for the 3rd quarter when the worst of the health crisis will hopefully be past,” Bosworth said.
Diane Swonk, chief economist at Grant Thornton, a major accounting firm, wrote in a blog post Wednesday that the bill is designed to temporarily help individuals, firms of all sizes, hospitals and states “traverse COVID-tainted waters.”
Swonk, however, argued that these measures “will not stop a recession from occurring.” The goal is to blunt the blow to the economy “so that we have a foundation from which to recover,” she said.
“The cost-benefit is unambiguous: Upfront losses to stem the virus, with lifeboats in the water to keep us afloat, are much better than risking waves of infection, panic and what could easily morph into a depression,” Swonk said.
At a White House press briefing Wednesday afternoon, Treasury Secretary Steven Mnuchin said he anticipates the stimulus package will keep the U.S. economy afloat for about three months. “Hopefully we won’t need this for three months. Hopefully this will be won quicker,” he said.
The White House had originally proposed a 1-trillion-dollar stimulus package, but several rounds of negotiations among lawmakers ballooned the cost of the package to roughly 2 trillion dollars. That is much bigger than the 700-billion-dollar Wall Street rescue following the 2008 financial crisis.
The bill is the third legislative package passed by Congress to address the COVID-19 outbreak, following an 8.3-billion-dollar emergency spending bill, mainly for research and medical needs, and a 100-billion-dollar bill to expand paid sick leave and provide free testing. This is on top of the 50 billion dollars freed up by the national emergency declaration, which could support states in buying medical equipment.
U.S. Congress is under mounting pressure to quickly pass the massive stimulus package and soothe the markets and the public, which are rattled by the growing magnitude of the crisis.
The United States reported more than 69,000 COVID-19 cases as of Wednesday night, ranking third worldwide, behind China and Italy, according to a data tracking tool developed by the Center for Systems Science and Engineering at Johns Hopkins University. The death toll has exceeded 1,000.
More and more state and local officials have closed nonessential businesses and ordered residents to stay home in a bid to slow the spread of the virus, effectively shutting down a significant part of the economy. Unemployment claims are expected to surge in the next few weeks.
Former U.S. Federal Reserve Chairman Ben Bernanke told CNBC on Wednesday that the U.S. economy could have a “very sharp” recession in the next two quarters, but followed by a “fairly quick rebound,” if there’s not too much damage done to the workforce and the businesses during the shutdown.
According to a forecast released by the Institute of International Finance (IIF) on Monday, the United States is already in recession, with negative growth in the first quarter and large contractions in the second quarter. For the whole year, U.S. economy is expected to contract 2.8 percent.
A recent survey of 34 economists by The Wall Street Journal projected a downturn that would last months at least and would in some ways rival the severity of the global financial crisis in 2008.
“The risk for market participants is the permanent damage to the economy that will occur with insufficient federal support for jobs during this crisis,” said Tim Duy, an economics professor of the University of Oregon, warning that initial claims for unemployment may exceed 2 million this week.
“This is not just another recession. We need bigger and newer tools to mitigate the damage,” Duy said.
Swonk noted that the size of the stimulus package is smaller as a share of GDP than the backstops provided by other developed economies. “Despite the glaring gaps in our own safety nets,” she said, “more will be needed.” Enditem