A deal on a second round of fiscal stimulus has been in the works for months, but the House and Senate remain at an impasse. The death of Supreme Court Justice Ruth Bader Ginsburg on Sep. 18th made the passage less likely with a battle looming over the appointment of a new justice. However, hope was renewed last week as Speaker of the House Pelosi and Treasury Secretary Mnuchin confirmed ongoing talks.

House Democrats are now expected to pass a smaller COVID relief package this week amounting to around $2.4 trillion as an updated version of the $3.4 trillion HEROES act passed earlier this year. Many of the provisions of the earlier bill will remain in the new bill; direct stimulus checks, expanded unemployment benefits, and aid for state and local governments are all expected to feature prominently in the new legislation.

The Trump administration and GOP lawmakers are lobbying for a slimmer package that amounts to between $1 – $1.5 trillion in aid. The senate attempted to pass a “skinny” bill amounting to about $300 billion in aid on Sep 10th, but this too failed.

Messaging from the White House is mixed. Trump economic advisor Larry Kudlow said just last week that he didn’t believe additional stimulus was need for a V-shaped recovery, though he thought it would be helpful. This is in contrast to Fed Chairman Powell’s remarks just hours before in which he stated that additional support would be “needed at all levels of government”.

The size of the national debt is the issue at hand. Lawmakers and policy makers are largely in agreement that additional stimulus is needed, or at a minimum helpful, but cannot seem to agree on just how much further into hole the US should go in pursuit of relief. For perspective, the US has committed about 15% of its GDP towards stimulus. Europe is closer to 30% and Japan is closer to 40%.

Markets are responding positively to the news that Pelosi and Mnuchin are still talking, but rising infection rates in Europe and the possibility of a fresh set of lockdowns are dampening expectations. The outcome of the bill is still far from certain, but we believe a bad stock market may be the catalyst that spurs passage. Hopefully we’re wrong.

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