- JPMorgan Asset Management global strategist says U.S. economy can endure a delay in stimulus funding as long as more spending occurs by early 2021
- President Donald Trump abruptly ended negotiations over new COVID-19 relief Tuesday, but has offered support for some standalone funding bills including stimulus checks and small business support
- Economists have voiced concerns that further stimulus delays could slow recovery or tip economy into a recession, with industries such as travel and food service suffering major losses
Patrik Schowitz, a global strategist at JPMorgan Asset Management, said today that the United States economy will be able to endure a delay in new COVID-19 relief funds as long as aid is approved by early next year. Other economists have offered darker forecasts, saying a delayed stimulus might imperil businesses’ chances of survival and weaken or reverse the nation’s economic recovery.
While there is broad support for a new round of relief as the COVID-19 pandemic grinds on, Democrats and Republicans have been at loggerheads over the size and scope of a new package. Democrats have favored a more comprehensive relief program, while Republicans have favored a narrower approach to limit how much is added to the national debt.
House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin recently expressed optimism that they were closing in on a compromise after ongoing negotiations. However, President Donald Trump abruptly axed the talks on Tuesday after accusing Pelosi of not acting in good faith.
Schowitz said immediate stimulus would be preferable but expressed his belief that the economy will be able to get through until early next year. He suggested that the economy will be further sustained by increased saving habits among households during the pandemic due to canceled vacations, eating out less, and other expense reductions.
This trend is not universal, though. A midsummer poll found that nearly half of American households reported being in severe financial distress, with 31 percent indicating that they had used up most or all of their savings. Minorities and low-income households were more likely to report such financial difficulties during the pandemic.
Amidst troubling signs such as furloughs becoming permanent layoffs and slower job growth, economists have warned that more fiscal relief is necessary to assist with a recovery and avoid a recession. Hours before Trump cut off stimulus negotiations, Federal Reserve Chairman Jerome Powell said new relief was necessary and that appropriating more funds for this cause would carry less risk to the economy than not appropriating enough.
Economists and trade organizations have warned of several consequences of delayed COVID-19 relief. These include an increased risk of evictions or foreclosures as unemployed Americans struggle to pay their rent or mortgage, public sector job cuts due to diminished state and local tax revenues, and major losses in areas such as travel, tourism, and restaurants. One report concluded that about one in seven small businesses in the U.S. had permanently closed by the end of August.
In announcing the end of stimulus negotiations, Trump promised a “major Stimulus Bill that focuses on hardworking Americans and Small Business.” He later said he would support standalone bills for $1,200 stimulus checks to taxpayers, funds to prop up the airline industry, and renewed funding for the Paycheck Protection Program to support small businesses.
Democratic presidential candidate Joe Biden condemned Trump’s decision and promised to pursue a bipartisan agreement on COVID-19 relief if elected. Goldman Sachs’ chief economist recently suggested that a Democratic sweep of Congress and the White House in November could boost markets on expectations that it would break the impasse over new relief and result in the passage of a larger stimulus bill early next year.
