A crisis can stretch for weeks, months, even years, but its arc can be shaped by a few crucial moments in which political leaders choose a course of action. For a U.S. economy still reeling from the devastation of the novel coronavirus, one such moment is approaching.
Economists are warning the nation is in danger of careening off a fiscal cliff unless Congress approves a rescue package to succeed the $2 trillion Cares Act. Key elements of that are set to expire this month, just as a resurgence of the virus in states that rushed to reopen their economies is making the nascent recovery look decidedly vulnerable.
The Trump administration is calling on Republicans and Democrats to get legislation passed before the start of the summer recess in August.
“If Congress fumbles this, it’ll be a pretty big setback for the economy,” says Michael Feroli, chief U.S. economist for JPMorgan Chase & Co., the country“It would neither be another multitrillion-dollar bridge loan to make up for a totally shut-down economy nor an ordinary stimulus for a nation ready to get back to normal.” ’s largest bank.
The two parties are approaching this crossroads from wildly different starting positions. House Speaker Nancy Pelosi insists Congress should appropriate even more than the $3.5 trillion Heroes Act passed by the Democrat-controlled House in May. “This is about survival of our economy,” she told reporters on July 16. “The clock is running out on it.”
Republican Senate Majority Leader Mitch McConnell has dismissed the bill as a bloated liberal wish list. Many of his colleagues have raised concerns about adding more to a federal debt that now exceeds 80% of the country’s gross domestic product. That said, McConnell told the White House he’s open to as much as $1 trillion. “New spikes in large and economically central states show that we are nowhere near out of the woods,” he said on July 20, adding that he hopes to unveil a plan this week.
“It would neither be another multitrillion-dollar bridge loan to make up for a totally shut-down economy nor an ordinary stimulus for a nation ready to get back to normal.”
“It was definitely a godsend,” says David Beckworth, a senior research fellow at the Mercator Center at George Mason University, a group that champions free-market economic theory. “Nothing’s perfect, but in the absence of that we would now be very much worse off.”
Retail sales, which plunged in March and April, rebounded sharply in May and were strong again in June. But the stimulative effects of the one-time payments are beginning to fade, while by some calculations as many as 25 million Americans will stop receiving the federal pandemic unemployment benefit near the end of July. Simultaneously, the latest data show the economy is beginning to stall again as Covid-19 infections surge in Sun Belt states from California to Florida.