The likelihood of a robust stimulus package is fading.
While there’s renewed hope that Congress may pass more coronavirus relief this year now that the presidential election is over, the bill could be smaller if Republicans keep control the Senate even though Democrat Joe Biden has captured the presidency, experts say.
“A divided government, with Democrats controlling the White House and Republicans the Senate, is likely to mean a smaller fiscal stimulus package than had been anticipated,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note.
To be sure, control of the Senate by Republicans is still not a certainty, even if indications lean that way. A Democratic sweep looks unlikely, although a runoff election for two Georgia Senate seats in January keeps the race alive.
House Democrats are targeting a $2.2 trillion package. Senate Republicans introduced a smaller $500 billion spending package that included aid for small businesses and federal unemployment benefits. But Democrats blocked it after the measure omitted $1,200 stimulus checks and aid for states.
UBS analysts expect a deal of up to $1 trillion, down from a $2 trillion stimulus package that was expected if the Democrats had captured a majority in the Senate.
The aid, however, is likely to include the elements that are essential to the recovery, including increased unemployment benefits and additional funds for struggling small businesses under the Paycheck Protection Program, UBS analysts said.
It’s unclear if the next package would include stimulus checks.
Economists have been clamoring for a renewal of stimulus since the expiration in late July of the last round of supplemental benefits for laid-off workers and other support approved earlier by Congress.
A divided government could also further impede an agreement on a fresh infusion of aid for the economy.
“Americans are suffering. The longer Congress waits on passing a stimulus package, the more small businesses will go bankrupt, and people won’t have the ability to make their rent or mortgage payments,” says Ken Moraif, senior adviser at Retirement Planners of America, a financial consultant.
“We’ll start to see systemic damage to the economy and see permanent unemployment grow even further,” Moraif adds.
In October, the ranks of workers permanently laid off dipped from 3.8 million to 3.7 million, according to the Labor Department. The figure had been steadily rising as employers cut ties with a growing share of the workers they had furloughed.