The historic US fiscal aid package isn’t a quick fix, but it provides welcome relief and will make it easier for the US economy to rebound when the coronavirus crisis eases. More important, it shows that Congress is willing to act swiftly and dynamically.
The US Congress approved a massive fiscal relief bill today and President Trump quickly signed it into law. With the economic situation in the US deteriorating rapidly, policymakers’ first and foremost responsibility is to act with a sense of urgency—and flexibility. As we’ve noted, the Federal Reserve has already done that—going into parts of its playbook not used since the global financial crisis. Other policymakers around the world have also made big moves.
Now, Congress has stepped up and put its shoulder into the deepening crisis, reaching agreement on the biggest economic relief package in US history. The Coronavirus Aid, Relief, and Economic Security Act, known as the CARES Act, could amount to more than 10% of the country’s gross domestic product (GDP). It’s a notable accomplishment, given the gridlock that has largely prevailed in Washington, DC.
There will be plenty of time for deep-dive analysis of the bill’s specifics—all 880 pages of them. And we’ll highlight several key provisions in a moment. But in our view, the act of passing the bill itself has made a bigger statement.
A Welcome Sense of Fiscal Urgency from Congress
Because the crisis is so unpredictable, demonstrating the will to act is much more important than the details of those actions.
To us, it’s good news that the process of drafting this bill was—by congressional standards—relatively quick. We also take comfort from its ultimate size—at around $2 trillion, the package ended up much bigger than initial proposals. Congress often spends time debating what to delete from spending bills; in this case, it spent time adding to the bill.
That sense of urgency is critical to an eventual economic recovery.
So is flexibility in responding. The path of the public health crisis—and, by extension, the economy—is unknowable at this stage, so Congress must be willing to do more if it’s required. We see it as another piece of good news that several prominent policymakers expressed their willingness to pass additional legislation as necessary.
Help for Public Health, Businesses, Workers and Households
As for the specifics of the bill, it looks like Congress has a reasonable sense of the gaps in the economic safety net. The package devotes substantial money to healthcare and public health measures designed to address the tragic human impact of the virus itself.
The bill reportedly includes roughly $370 billion directed to small businesses to help them remain solvent and pay their employees. There’s roughly $500 billion in seed capital for the Fed to use as a special-purpose vehicle to support the corporate sector, as part of a program that could eventually reach several trillion dollars.
About $75 billion has been earmarked to bail out heavily affected industries such as airlines. It’s encouraging that those bailouts are accompanied by conditions that will hopefully make the program less controversial than the banking sector bailout was a decade ago.
Individuals and households will receive support under the bill, too, with direct payments going to those under specified income limits. Unemployment insurance benefits will be extended to four months and enhanced by as much as $600 per week.
No Quick Fix…but Facilitating an Eventual Rebound
There’s no doubt this massive package is a very important step in shoring up the US economy, but none of the spending in it—or in any subsequent bills—will be a quick fix. As long as the public health situation requires broad-based shutdowns and social distancing, it will be impossible to restart the economy.
But the stimulus will make it a lot easier to restart the economy after the crisis recedes if businesses can avoid bankruptcy, and if workers have jobs to return to instead of having to search for new ones. Fiscal policy isn’t a miracle cure, but it can keep the economic engine idling instead of freezing up.
With the passage of the fiscal package, Congress has shown it’s willing to play that role.
Eric Winograd is a Senior Economist at AllianceBernstein (AB).
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.