The relief put forth by Congress is not enough to cover the income Goldman estimates will be lost … [+]
Topline: The federal government is likely to pass at least one more fiscal relief package, according to economists at Goldman GS Sachs, which is likely to include additional aid to state governments, more funding for small businesses, expanded unemployment benefits, and possibly another round of direct payments to individuals.
- So far, Congress has passed three bipartisan relief bills to try to cushion the damage from the coronavirus; the largest of those bills is the CARES Act, worth a staggering $2 trillion.
- Goldman is expecting another bill because so far, the relief measures signed into law aren’t nearly enough to cover the income that has been lost as a result of the coronavirus crisis. The bank is forecasting private sector losses of $1.9 trillion in 2020 and $1.4 trillion in 2021.
- Analysts also noted that the new benefits in the CARES Act (like direct payments) won’t overlap perfectly with the economic losses caused by the coronavirus. “Consider that we expect 15% of the labor force to be unemployed in Q3, while nearly all households will receive the $1200 per adult payment,” the report notes. “This means that most of the $290bn in payments will go to individuals not facing a job loss.”
- Senator March Rubio of Florida, who is the chairman of the Senate Small Business and Entrepreneurship Committee, told CNBC on Monday that lawmakers expect that they will need to pass another relief bill in the coming weeks. “The appetite is there,” he said. “I think everyone I’ve talked to recognizes we’re going to have to go back and do more, and probably more than once.”
- House Speaker Nancy Pelosi has also called for more legislation, telling CNBC that the provisions in the CARES Act are “not enough.” Pelosi said she wants more direct payments to Americans (in addition to the $1,200 in the CARES Act), more funding for small businesses, and extended unemployment insurance.
Crucial quote: In his annual letter to shareholders this morning, JPMorgan JPM CEO Jamie Dimon warned of more economic trouble to come: “We don’t know exactly what the future will hold,” he wrote, “but at a minimum, we assume that it will include a bad recession combined with some kind of financial stress similar to the global financial crisis of 2008.”
Big number: Goldman Sachs expects the next stimulus package, if it is passed, to add another $500 billion to the federal deficit this year. In the current fiscal year, analysts expect the deficit to reach $3.6 trillion.
Key background: The historic CARES Act—the $2 trillion federal stimulus package signed by President Trump two weeks ago—includes sweeping provisions to shore up funding for hospitals and expand unemployment benefits. It allocates $349 in loans for struggling small businesses, $500 billion in loans and grants for companies in distressed industries, and provides direct payments of $1,200 to most Americans. The rollout of portions of the bill has been rapid and, at times, chaotic. The virus’s toll on the economy has already been staggering: over the last two weeks alone, for instance, some 10 million Americans have applied for temporary unemployment benefits.
What to watch for: Goldman Sachs expects the next stimulus package to encounter more “political friction” than any of the previous legislation. That’s because all the legislation so far has been passed on an emergency basis, and moving forward lawmakers will have more time to consider the full effect of a new bill on the federal budget. Goldman also notes that since Congress is likely to be on recess through late April, any new bill is unlikely to be enacted before May.