President-elect Joe Biden will ask Congress to spend $US1.9 trillion on a new economic rescue plan as the pace of COVID-19 infections and deaths shows no sign of easing soon and the US economy starts tipping towards another slowdown.
The package, announced in a prime time TV address Friday morning, Sydney time includes hundreds of billions of dollars of new direct payments to Americans, aid for state and local governments and more funding for America’s faltering pandemic response.
The stimulus package will include a $US350 billion cash infusion for budget-strapped state and local governments to prevent lay-offs of public sector workers, a move that has been long-resisted by Republicans in the Senate.
The package also contains more than $US400 billion to combat the pandemic directly, including accelerating vaccine deployment and safely reopening most schools within 100 days of the US Congress approving the bills.
It also includes a new payment of $US1,400 to most Americans, supplementing the $US600 cheques recently received by individuals earning less than $US75,000 per year.
That would bring the total value of recent direct payments to $US2,000, the level backed by both President Trump and Mr Biden in recent months.
Wall Street dipped ahead of the statement, despite spending most of the session in the green. S&P 500 futures were positive in early Asian dealings.
Biden’s package will mesh nicely with the realistic comments earlier on Thursday from Fed chair, Jerome Powell. His comments came after more data showed the US labor market weaker and not improving as ours is here in Australia.
Powell’s remarks, in a virtual interview with Princeton University – were a direct rebuttal of rising comments from headline hungry American market economists and analysts that the Fed is thinking of slowing the pace of its tapering (now $US120 billion a month), a move that would be a small but highly significant tightening in the current expansive monetary policy stance from the US central bank.
Some economists (even the odd Fed member) have suggested this could happen sooner than later.
But those claims are out of touch and you have to wonder if the economists have been working from home for a month or two too long. They have ignored a distinct worsening in the health of the US jobs market and the economy over the past two months.
While the US lost 140,000 jobs in December in the first fall in employment in months, the latest first time jobs claim data for last week confirms that the losses in January will be much larger.
Initial claims for state unemployment benefits jumped 181,000 to a seasonally adjusted 965,000 for the week ended January 9, the highest since late August. Unadjusted claims, which economists now prefer, jumped more than 20% to 231,335 to 1.151 million last week. (Economists prefer the unadjusted number because of earlier difficulties adjusting the claims data for seasonal fluctuations due to the economic shock caused by the pandemic).
Including a government-funded program for the self-employed, gig workers and others who do not qualify for the regular state unemployment programs 1.4 million people filed claims last week.
And continuing claims, which measures the total number of laid-off workers collecting state unemployment benefits, rose for the first time since November to 5.27 million in the week ending January 2 – an increase of 199,000 over the reading for the final week of 2020.
So it’s no wonder Fed chair Powell made it clear that the economy was far from the Fed’s inflation and employment goals. He said an interest rate increase as well would come “no time soon” given the depth of the economic problems related to the still-raging pandemic.
Powell made clear there will be no slowing in the pace of the Fed’s quantitative easing via purchases of government bonds. His reasoning – the US economy remains weak, inflation is low, wages growth fading and employment weakening.
The economy still needs all the help it can get from the Fed and the Biden package will add to that support.
But it will all depend on bringing the pandemic under control and hoping that the various vaccines confer long term support.
