The mammoth $2 trillion rescue package on the brink of heading to President Donald Trump’s desk would plug some of the massive holes coronavirus is ripping through the American economy.
But the massive effort — the largest single injection of federal cash into the economy in U.S. history — will do nothing to flip the switch back on for an economy enduring the swiftest paralyzation any major developed nation has ever seen.
The third phase of the government’s coronavirus response amounts to 10 percent of America’s total economic output for an entire year. But many economists believe it will need to be followed by a fourth phase and possibly more after that. That’s because damage is mounting across the U.S. and around the globe — even beyond the workers laid off and businesses shut down — with longer-lasting consequences that policy makers likely can’t even see yet.
“The Federal Reserve and Congress are helping avert for now a massive self-feeding economic and financial decline that threatens a devastating combination of a 1930s-like depression and a 2008-like global financial crisis. That’s the good news,” said Mohamed A. El-Erian, chief economic advisor at Allianz. “There will definitely be a need for a phase four.”
The timeline for more action would be “dependent on how long it takes for health policy to get its arms around virus containment, treatment and immunity,” El-Erian said. “The quicker this happens, the more phase four will be about reactivating economic activity rather than just damage containment.”
The need for a fast and massive infusion of federal cash became starkly evident on Thursday when the government reported that 3.3 million Americans applied for jobless benefits in a single week, by far the largest number in history. The previous record was just under 700,000 in 1982.
Federal Reserve Chair Jerome Powell took the highly unusual step of appearing on television on Thursday before the claims numbers came out to calm the public and markets.
“We may well be in a recession,” Powell said on NBC’s “Today” show. But he added that it could be a sharp and short one, particularly as the central bank is taking unprecedented measures to prop up markets and funnel money to small and medium-sized businesses most at risk. “When it comes to this lending, we’re not going to run out of ammunition,” he said. “That’s not going to happen.”
The extreme volatility that has gripped markets over the past month jolted stocks higher in recent days, with investors riding a wave of momentum tied to the expected passage of the economic rescue package. But stocks remain far from their records of last month and most investors expect considerable volatility in the weeks ahead.
Few analysts are suggesting the “phase three” package is anything less than massive. Many believe it will bring significant relief by jamming cash into the pockets of Americans losing work in mass numbers while propping up many small and midsize business in danger of shutting down in the coming weeks.
It also funnels money to states, hospitals and airlines as well as other hard-hit large businesses. Some governors, including New York’s Andrew Cuomo, have said the aid to states is far too small to help with what are expected to be massive declines in tax revenues that will wreck many state budgets. That is expected to be on lawmakers’ plates in the coming months.
Economists and Wall Street analysts mostly suggest the package, coupled with massive stimulus efforts from the Fed, will boost the fight against the virus and cushion the massive hit to businesses and individuals.
But they mostly describe it as triage, not major surgery. How much more is needed will depend on when the country can return to something resembling normal business.
President Donald Trump is pushing hard to restart the economy by as soon as Easter Sunday, April 12. But the still-rapid spread of the virus and the need for buy-in from state and local officials as well as employers means that date could easily slide for weeks, if not months.
In that case, Washington will have to open up the cash spigots again.
“The Senate stimulus package should keep millions of Americans from very dire straits while they are away from work and keep many businesses where they work from going out of business in the interim,” said Lou Brien, economic strategist at DRW Trading Group. “But there is the dual calculation of how long the quarantine will last and how quickly will life return to normal.”
Brien added that “if the answers to both those questions are longer than expected, then there is trouble, because it is not clear how much more there is in reserve.”
To be sure, a lot of money is about to go out, though it remains to be seen how fast.
The package would send $1,200 checks to many Americans and an additional $500 per child for qualifying families. But taxpayers who don’t already have direct deposit arrangements with the IRS may have to wait a significant period of time to get their money. The payments will go down depending on income, phasing out completely at $99,000 for individuals and $198,000 for joint filers.