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.
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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.
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A number of analysts are concerned that some Republicans will have little incentive to push a package through during a lame-duck session at the end of 2020. That said, some Republican officials have signaled they want to strike a deal before the end of the year.
On Wednesday, Senate Majority Leader Mitch McConnell said he supported Congress passing a new stimulus package before the end of the year instead of January, as he previously stated. The Senate returns from recess Monday.
"I think we need to do it and I think we need to do it before the end of the year," McConnell said in a news conference on Wednesday. "I think now that the election's over, the need is there and we need to sit down and work this out."
Then on Friday, McConnell said Congress should enact a smaller stimulus package since a drop in the unemployment rate to 6.9% last month, along with other indications of economic growth signaled that the U.S. economy was in a recovery.
“I think it reinforces the argument that I’ve been making for the last few months, that something smaller – rather than throwing another $3 trillion at this issue – is more appropriate,” McConnell told reporters, according to Reuters.
But House Speaker Nancy Pelosi rejected his call for a narrow bill. She has been working with Treasury Secretary Steven Mnuchin to strike a deal near $2 trillion.
“It doesn’t appeal to me at all, because they still have not agreed to crush the virus. If you don’t crush the virus, we’re still going to have to be dealing with the consequences of the virus,” Pelosi said in a news conference.
Still, some analysts are concerned about the viability of a stimulus package after both parties failed to strike a deal in recent months.
“There’s going to be a lot of hard feelings between Republicans and Democrats coming out of this election,” says Andrew Mies, chief investment officer at 6 Meridian, a registered investment adviser. “If things are more of the same in Congress, does that mean we’ll continue to have a stalemate with the stimulus package?"
Several European governments are bringing back restrictions on businesses in hopes of stemming surging cases of the virus. In the United States, where infections are also rising at a troubling rate, the worry is that fear alone could depress sales for companies, leading to further layoffs.
"The economy will need an additional round of stimulus early next year. We’re already seeing modest lockdowns in Europe," Mies says. "State by state, there could be more restrictions of what people could do, and as a result, there will be more unemployment issues."
This article originally appeared on USA TODAY: Stimulus checks: What does a Biden win mean for the next relief bill?