Covid cases are soaring, businesses are staring at a gloomy winter, millions of Americans are struggling and Congress … well, they’re on recess. POLITICO’s Sarah Ferris breaks down why there’s still no deal on another round of coronavirus relief.
Mnuchin, for his part, defended the move as adhering to congressional intent that the programs stop making new loans at the end of the year, a legal interpretation that is disputed.
“This is not a political issue,” he told CNBC.
That will make things tougher for Biden, although all the central bank can really offer vulnerable industries is help in building up debt more cheaply — a bridge to the other side of the crisis, rather than a long-term solution. Republicans will probably block his most ambitious spending programs, as they did with President Barack Obama in the years after the 2008 financial crisis.
Biden’s problems will be compounded by the scheduled expiration of millions of Americans‘ unemployment benefits at the end of the year, including many who were spared from eviction by a moratorium imposed by the Centers for Disease Control and Prevention that runs out at the same time.
“It’s just frustrating that [Congress] couldn’t get this done,” Sheila Bair, who headed the FDIC during the 2008 crisis, said of another round of economic aid. “The Fed’s been heroic in these interventions, but monetary policy is just not a good mechanism for channeling money to households.”
Said Seth Carpenter, chief U.S. economist at UBS: “Pre-Covid, central bankers were saying, ‘We want more fiscal policy. We’re growing but it’s sluggish.’ That was pre-Covid. Then you had the worst shock anybody’s seen, so it seems like it can only reinforce that pre-Covid perspective. Central bankers were already saying monetary policy can’t do it all by itself.”
“It’s got to help what they’re doing, but it just takes years to get back” to where we were, he added.
In the meantime, the central bank will do what it can. Markets will be watching to see if the Fed further ramps up its bond purchases to help keep longer-term borrowing costs low, to encourage businesses to make longer-term investments.
The administration itself is limited in what it can do without more spending from Congress. There aren’t many immediate options for the Biden team to further aid the economy without more funding from Congress, beyond temporary relief like tax deferrals or smaller scale structural changes that will only help over the long run.
But Yellen, if confirmed, could work to boost the confidence of businesses worried about how they’ll be treated and uncertain about new regulations, said Karen Dynan, an economics professor at Harvard University.
“You don’t want businesses just to get stuck where they are in not wanting to expand or rehire workers or make investments because they don’t know what’s coming down the road from Washington,” Dynan said.