MNI EXCLUSIVE: Biden Could Seek Another $900B Fiscal Bridge

U.S. President-elect Joe Biden could be forced to seek another fiscal aid deal in the spring equal in size to the newly passed USD900 billion stimulus package to offer relief to state and local governments and see the labor market recovery through vaccine distribution, former government officials told MNI.

Last week's deal is "very unlikely to be enough," said former Federal Reserve vice chair Alan Blinder. The economy likely needs double that amount, or about USD1.8 trillion, including supplemental benefits for the unemployed that extend past the current 11-week provision, he said. "But having palliatives in place right now, today, is extremely important," he added, as the winter surge in Covid cases takes its toll.

In addition, the Federal Reserve may consider enlarging its asset purchase program or extending the maturity of its Treasuries purchases if the recovery stalls going into spring, Blinder said. The FOMC made no changes to its purchases at its December meeting.

"I'm sure Chairman [Jerome] Powell and his colleagues are happy to see this pass," he added, referring to the USD900 billion stimulus. "Whatever urgency they felt in expanding QE in any way, whether in volume, length, or maturity, must be lessened a bit by this fiscal action."

What a Biden proposal will look like depends in part on the results of Georgia's two Senate runoff elections Jan. 5, which will determine whether Democrats gain control of the Senate. The most recent polls suggest very tight races.

BACK TO WORK

Ed DeSeve, a former senior adviser to President Barack Obama, said he expects the incoming president to seek another major fiscal relief package early in 2021 including state and local aid and funds to speed vaccine distribution.

The current fiscal compromise offers only a "rickety bridge" that is "not strong enough nor long enough to keep the economy in a discrete direction," he said. "The next package is going to be targeted at putting people back to work" with an emphasis on infrastructure projects.

Extending jobless benefits past Apr. 5 will "almost certainly be necessary," said Blinder, echoing concerns about lasting job market scarring. The new stimulus program provides a USD300 per week bonus on top of regular state unemployment pay.

Casey Mulligan, a former chief economist for the Council of Economic Advisers in the Trump administration, agreed and expected the March 14 jobless benefits application deadline to be a key date for fiscal negotiations.

"With the duration of the pandemic and the vaccine rollout, there is a need for longer benefits so that the number of weeks of benefits matches up with the duration of the virus," he said.

BENEFITS DEBATED

Still, Democrats and Republicans continue to feud over the effects of jobless benefits and the USD300 weekly top-up.

"The same criticism that we heard back in March that unemployment benefits allow recipients to see more money when unemployed than when employed is at play today but is at a lower force as payments are down to USD300 per week from USD600," Blinder said. "Instead we should have put the level of income replacement based on a percentage."

Mulligan predicted that the bonus cash would be a strong incentive for many jobless to go on unemployment rolls. "With an added bonus incentive of USD300 per week to make a claim, you're going to get more claims, perhaps dramatically near July levels, rather than August or September levels."

In addition to USD120 billion in jobless benefits, the package signed into law over the weekend will deliver USD325 billion in aid to small companies and USD166 billion in USD600 direct cash payments to most Americans. Congress is also debating whether to increase the direct checks to USD2,000 from USD600 for those making less than USD75,000 a year, though those talks appeared to stall Tuesday.

DeSeve, who oversaw the administration of the 2009 stimulus and often met with Biden regularly, said the package is "a shotgun approach, a blast if you will," intended to shovel cash out the door as quickly as possible. He predicted that Biden's next package will be more focused.