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December 20, 2020

The relief package is expected to pass with a $1.4T government funding deal early in the week. Hear more from Raymond James Washington Policy Analyst Ed Mills.

Congress has reached a deal and is set to advance a $900 billion package including new funding for small businesses, a second round of individual checks, extension of federal unemployment benefits and various funding for state and local programs. We expect the package will provide support for the economy through March. The bill is expected to see passage early in the week of Dec. 21, pending any final legislative hurdles.

With unemployment insurance expiring in early March, the spring is likely the next catalyst for a follow-on package which may be geared more toward recovery measures, depending on the health and economic situation over the next several months.

Stimulus deal details

Lawmakers reached agreement late Sunday and have passed a one-day government funding extension with the goal of passing the fiscal stimulus deal with a $1.4 trillion government funding deal early in the week.

A breakdown of the stimulus deal as follows:

• Small business support: $284 billion of new funding for small business Paycheck Protection Program (PPP) loans with expanded eligibility for nonprofits. Specific support is said to be included for independent restaurants, but details are not yet clear. $20 billion is provided for targeted Emergency Injury Disaster Loan (EIDL) program small business grants. $15 billion is provided for live music venues and $9 billion is dedicated for Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs).
• Unemployment support: Unemployment insurance enhancement of $300 per week is included for 11 weeks. Pandemic Unemployment Assistance (PUA) for self-employed and gig workers is also extended for 11 weeks.
• Individual checks: $600 per individual and $600 per child with no limit on children. The same income phase out from the original CARES Act is included at $75,000. Adult dependents are reportedly excluded. An earlier proposal that would limit receipt of both checks and unemployment assistance is reportedly not included.
• Housing assistance: $25 billion is provided for rental assistance and the eviction moratorium is extended (extension length currently unclear).
• Industry support: $15 billion is reportedly provided for continued airline payroll support. Business meal deductibility is reportedly also included, with details not yet clear.
• State/local funding: $82 billion is provided for schools and colleges. $27 billion is targeted for state highway/transit/rail/airports. $22 billion provided for state healthcare funding. $7 billion for broadband connectivity and an Emergency Broadband Benefit to offset costs. States are further provided a one-year extension to access the state Coronavirus Relief Fund established under the CARES Act ($150 billion). This will allow states to cover expenses incurred through December 2021.
• Miscellaneous: The overall $1.4 trillion government funding package includes research and development enhancements and an extension of clean energy tax credits.

Impact on the Fed

Language restricting the Federal Reserve’s ability to restart certain lending programs ending at the end of 2020 will be included after negotiations yielded a compromise over the weekend. The exact language is not clear at this stage, but there already appears to be disagreement among Republicans and Democrats on its ultimate impact. A more restrictive view is that the Fed will not be able to restart programs that were backed by CARES Act funding, including the Primary Market Corporate Credit Facility, Secondary Market Corporate Credit Facility, Municipal Liquidity Facility, Main Street Lending Program, and Term Asset-Backed Securities Loan Facility. A permissive interpretation is that these programs cannot be restarted with the same terms.

This debate will spill over into 2021 and may become a point of contention should incoming Treasury Secretary Janet Yellen and Fed Chair Jerome Powell move to restart these programs if deemed appropriate. At last week’s Federal Open Market Committee (FOMC) press conference, Powell stated that the lending programs can be restarted using Treasury’s Exchange Stabilization Fund. We expect Yellen and Powell can find creative solutions, but the effort to curtail the lending authority can be viewed as Congress stepping in and exerting oversight powers in an effort to push back on the Fed’s role in this year’s stimulus debate. We will be watching to see whether lawmakers take further steps to clarify congressional intent in this space, or if the Fed’s communications on fiscal matters becomes more restrained as a result.

All expressions of opinion reflect the judgment of the author and are subject to change. The foregoing content is subject to change at any time without notice. Content provided herein is for informational purposes only. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.