There’s a new barrier to a fourth stimulus bill
Markets are relieved to have a clear election outcome (and encouraging news on a coronavirus vaccine). But the post-election political landscape diminishes the prospects for another market priority: a big new stimulus bill to counteract the coronavirus recession.
After three months of pretending to try, Democrats and Republicans abandoned stimulus negotiations in late October, with both sides vowing to restart talks after Election Day. Analysts predicted a more earnest legislative effort when neither side would have to posture for electoral advantage. But the posturing continues, since two runoff races for Senate seats in Georgia on Jan. 5 are now set to determine the makeup of the Senate. This new political landscape is likely to push a fourth stimulus bill into 2021 and make it considerably smaller than many investors would like.
House Speaker Nancy Pelosi clearly stalled on a bill prior to the election, hoping Democrats would win the White House and the Senate and gain the leverage to pass a huge spending bill similar to the $2.3 trillion package the House passed in May. She miscalculated. The “blue wave” many polls predicted didn’t materialize and Republicans, for now, still hold a narrow edge in the Senate.
The best Democrats can now hope for is a 50-50 tie if they win both Georgia runoffs. That would give them de facto control, since incoming Vice President Kamala Harris would break tie votes. But odds are Republicans will hold at least one of those seats. And even if Democrats had a 1-vote advantage, they’d still have to appease at least three moderate senators in their party, who hail from purple or red states and are not likely to vote for lavish spending bills.
Before the election, Pelosi and the Trump White House were close to agreeing on a deal for close to $2 trillion in new stimulus spending. But Senate Republicans weren’t on board, and Senate Majority Leader Mitch McConnell signaled the upper chamber might only support something in the range of $300 billion to $650 billion. With Trump on his way out, the White House no longer has a political incentive to ink a large deal. So Pelosi and McConnell will now most likely pursue a bill without Trump pushing for a bigger price tag.
‘Distrust in the lame duck’
The current lame-duck Congress still has to pass a funding bill in December to keep the government running, and there will probably be some chatter about Congress passing a stimulus bill as part of that package. But don’t count on it. “It is difficult to see how Washington can claw through the fog of disdain and distrust in the lame duck,” writes Isaac Boltanksy of Compass Point Research & Trading. “We believe that fiscal negotiations will be reset in the new year.”