Biden Unveils Stimulus Plan

President-elect Joe Biden revealed his $1.9 trillion coronavirus rescue package on Thursday (Jan 14).

The goal is to promote job creation and incentive spending that many economists say is necessary to revive the economy.

Federal Reserve Chairman Jerome Powell has been urging for additional economic stimulus, arguing the recovery “still has a long way to go,” and funding is needed until most of the population has access to a Covid vaccine.

The main points of the plan that still need to be approved by Congress are:

  • Direct payments of $1,400 to most workers, bringing the total relief to $2,000, including December’s $600 payments
  • Increasing the federal weekly unemployment benefit to $400 from $300 and extending it through the end of September
  • Increasing the federal minimum wage to $15 per hour
  • Extending the eviction and foreclosure moratoriums until the end of September
  • $350 billion in state and local government aid
  • $170 billion for K-12 schools and institutions of higher education
  • $50 billion toward Covid-19 testing
  • $20 billion toward a national vaccine program in partnership with states, localities, and tribes
  • Making the Child Tax Credit fully refundable for the year and increasing the credit to $3,000 per child ($3,600 for a child under age 6)

 

According to many media outlets, the proposal is one of the two rescue plans Biden will seek Congressional approval for implementation in the first few months of his administration. The second one, more focused on long-term goals, is expected to be unveiled in February.

The mains U.S. indexes fell after Biden’s plan was announced. On Friday, the S&P 500 lost 0.72%, the Dow dropped 0.57%, and the Nasdaq Composite closed 0.87% down, reflecting the decline in the retail sales in December announced in the morning.

The indicator, a measure of purchases at stores, restaurants, and online, dropped 0.7% from November, the third consecutive month of declines, a sign that the pandemic continued to affect the economy.

The day before, the jobless claims report showed that first-time unemployment insurance claims jumped to 965,000 the previous week, the highest level of initial unemployment claims since August.

Despite stocks having closed in red territory after Biden’s bill was presented, Wall Street had been anticipating a new stimulus (probably smaller though), especially after the Georgia runoff elections, in early January, that gave Senate control to Democrats, who already controlled the House.

They have a slim majority in the upper chamber. Since each party has 50 seats, vice-president-elect Kamala Harris will have a decisive vote, breaking any ties that may occur.

This means that to approve Biden’s proposal – and other important bills – Democratic Senators need to vote unanimously, because the $1.9 trillion plan will probably be rejected by the major part of Republicans, who were aiming to approve a much smaller bill, of $900 billion.

If approved in full, Biden’s package would bring the total U.S. fiscal stimulus since the pandemic began to $5.2 trillion. This is equivalent to about a quarter of the U.S. annual economic output.

Biden recognized the ambition of its plan. “I know what I just described does not come cheaply, but failure to do so will cost us dearly,” he said. “The consensus among leading economists is, we simply cannot afford not to do what I’m proposing.”

The point now is where the money will come from for this massive aid rescue. 

It’s expected the government will pay for it with more debt issuance, increasing the yields of benchmark 10-year notes and taxes increase, which could cap stock valuations.