Image for Schools Start to Reopen as Congress Remains Stuck on More Aid

No coronavirus financial aid deal is in sight as negotiations may not resume until after Labor Day when Congress reconvenes and as schools across the country struggle to reopen safely. 

As the stalemate continues, the Trump administration is signaling more executive actions to prop up the economy, including aid for the ailing US airline industry. Major carriers are warning of massive layoffs unless payroll protection is extended through next March. 

Republicans and Democrats remain stalemated over the size of the next and possibly last coronavirus financial relief package. House Democrats have passed a $3.4 trillion measure. Senate Republicans and the Trump administration have countered with something closer to $1 trillion.

Differences run deeper than the total amount. Democrats are pushing for substantial sums for states, local governments and school districts, which are under pressure by Trump to reopen. The Republican counterproposal is cloudier on details, but it clearly falls far short of what Democrats are willing to accept. 

A new element has entered the equation – a continuing resolution to keep the federal government afloat past September 30. Both sides want to avoid a government shutdown before an election, but they disagree on how long the continuing resolution should last. Democrats want it to extend into 2021, while Republicans want it to expire after the election, requiring action by a lame duck Congress.

Both sides blame each other for the political stalemate. Mark Meadows, Trump’s chief of staff, says House Democrats want to dictate how relief money is allocated. House Speaker Nancy Pelosi says Republicans are stalling because they oppose assisting financially strapped state and local governments and school districts, which she claims are being “bullied” by Trump to reopen.

And then there is the US Postal Service, which has been in the presidential bullseye for some time and has become the focus of the partisan debate over vote-by-mail in the November general election. House Democrats are insisting on a $25 billion bailout, the amount the Postal Board requested. Republicans have balked in deference to Trump, who at one point threatened to veto a coronavirus relief measure if it included financial relief for the Post Office.

According to Roll Call, Meadows has tried to pitch Democrats on a smaller package that provides funding for small business and a continuation of enhanced unemployment payments, plus some Postal Service assistance. Pelosi said the offer is short of any assistance for schools, fighting the virus, rental assistance and support for state and local governments.

Differences run deeper than the total amount. Democrats are pushing for substantial sums for states, local governments and school districts, which are under pressure by Trump to reopen. The Republican counterproposal is cloudier on details, but it clearly falls far short of what Democrats are willing to accept.

Meanwhile, the Federal Reserve Bank announced a new policy framework that will lead to an easier monetary stance over time. Fed officials will allow inflation to exceed 2 percent, the average inflation target, before raising interest rates in an attempt to sustain a “robust job market”. Observers of the Fed say the policy, which was endorsed by all 17 top officials, seeks to undo sluggish economic performance caused by “low inflation expectations”.


 “We have seen this adverse dynamic play out in other major economies around the world and have learned that once it sets in, it can be very difficult to overcome,” explained Fed Chairman Jerome Powell. “We want to do what we can to prevent such a dynamic from happening here.”

Morgan Stanley posted a blog over the weekend describing four post-pandemic economic scenarios that range from a bear market to a robust recovery. All four scenarios predict inflation at or above 2 percent. The more optimistic scenarios don’t take into account a severe spike in coronavirus cases during flu season this fall.

“The more severe the crisis through the end of 2021, the deeper the scars over the next three to five years,” says Ellen Zentner, chief economist for Morgan Stanley. “On the other hand, a rapid return to pre-pandemic conditions could undo the damage earlier than expected.”

The investment banker identified the two critical variables as the timing of a viable COVID-19 vaccine and the severity of “consumer risk aversion”. It also noted, “The prevalence of employees working from home remains a key factor, with ramifications for real-estate markets, human capital, consumer spending and technology.”

Under the robust recovery scenario, a bull market develops, annual Gross Domestic Product growth reaches 2.5 percent and unemployment drops to 3.5 percent, roughly where it stood before the economic lockdown. Productivity growth would approach 2 percent and inflation could be as high as 2.5 percent.

The worst-case scenario, labeled as “Deep Scars”, produces a bear market, GDP growth barely topping 1 percent and a 6 percent jobless rate. There also is a serious productivity lag as consumer spending and business investment stall, while inflation would stay at or below 2 percent.

The two middling scenarios yield GDP growth up to 2 percent and jobless rate north of 4 percent. Productivity would be at or just above 1 percent and inflation could range from 2 to 2.4 percent.