Congressional Stalemate on COVID-19 Relief Package

Democratic Senators on Monday shot down a $2 trillion economic relief package during a revote following a similar turnout Sunday night.

Democrats view the bill as a corporate bailout that doesn’t do enough to help hospitals, local governments, working class Americans, and the unemployed.

GOP lawmakers accused Democrats of trying to add unrelated items to the bill, including measures favoring renewable energy and unions. Democrats accused Republicans of adding a measure that would exclude rape-crisis centers from benefiting from a financial-assistance program.

“This legislation is now approximately $2 trillion,” said Treasury Secretary Steven Mnuchin. “Part of that is $500 billion, which is not a slush fund – that we can use in working with the Federal Reserve that will provide another $4 trillion of potential liquidity into the market. That’s on the top of the Fed’s balance sheet.”

The relief package includes $350 billion for small business loans that will be forgiven if companies use the loans to keep workers on payroll, $75 billion for hospitals, a one-time payment of $1,200 per person, and $500 billion to help distressed businesses including airlines and medical equipment suppliers. The bill does not include any direct aid for states, which have asked for $150 billion.

“This is not a juicy political opportunity,” said Senate Majority Leader Mitch McConnell (R-KY). “This is a national emergency.”

In the meantime, the Federal Reserve is doing everything within its power to help mitigate the economic effects of the virus. 

Last week, the Fed cut interest rates to zero and promised to purchase at least $700 billion in Treasury and mortgage securities. On Monday, Chairman Jerome Powell said the bank would do practically anything to keep the American economy afloat.

“This is the first time they’ve really basically turned into a commercial bank instead of a central bank,” says Michael Feroli, chief economist at JPMorgan.

The Fed has invoked so-called 13(3) powers six times in the past week, allowing it to lend on a broad basis during emergencies. The bank has offered to extend loans to big and small businesses and to purchase unlimited amounts of government debt. This week, the Fed unveiled three new lending facilities with $30 billion to support credit markets.

“It has become clear that our economy will face severe disruptions,” said the Fed in an announcement Monday morning. “Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate.”

Having learned from the disaster in 2008, the Fed is moving further and faster this time to prevent economic collapse. 

“The big question now is how quickly the Fed, working with the Treasury Department and awaiting a potential infusion of funds from Congress, can limit a deepening working-capital crunch moving across the economy,” notes WSJ contributor Nick Timiraos.

Analysts predict the economy will shrink 30% during the second quarter, sending the unemployment rate as high as 13%.