Massive US fiscal package needs effective implementation

By Anna Stupnytska
Head of Global Macro and Investment Strategy

After some false starts, the Trump administration has finally passed a bipartisan deal in the Senate on a rescue package of historic proportions. This is an important first step towards unlocking much-needed funds for an economy in crisis. Although the deal did not come as a complete surprise, it nevertheless provided a sense of relief to markets.

The $2 trillion stimulus package - two and a half times bigger than President Obama’s agreement passed during the global financial crisis - is critically important to help the US economy navigate the ongoing coronavirus-induced recession. Despite a number of disagreements leading up to the deal, the relatively speedy timeline is a positive surprise, although given the nature of this crisis an earlier rescue package would have had even more economic clout. Financing the deal should be relatively straightforward given the Federal Reserve’s recent unprecedented policy package, effectively committing to ‘QE infinity’.

The extensive reach of the fiscal agreement is reassuring. It targets individuals via direct payments and improved unemployment benefits, small and medium-sized enterprises (SMEs) and large businesses via loans and other assistance schemes, and state and local governments, hospitals and other healthcare providers via direct funding.

However, the main concern now is around implementation: cash needs to flow rapidly to where it’s most needed. Bureaucratic and distribution obstacles could slow this process down by weeks or even months - a delay the US economy cannot afford. Any hold-up could result in a longer and, possibly, deeper recession, extending into the second half of the year.

With uncertainty around the virus trajectory still high, this fiscal measure may not be the last lifeline thrown to the economy. Even more unprecedented policy measures might be needed over the coming months.