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Washington Policy Analyst Ed Mills and Healthcare Policy Analyst Chris Meekins discuss the response plans taking shape in the U.S. capitol.

Policymakers are ramping up their response to mitigate the spread of COVID-19 and the associated economic impacts as the CDC has updated its guidance on limiting social gatherings and lawmakers begin to lay out their positions on substantial economic relief measures of upwards of $750 billion. However, process delays are expected along the way, which are likely to contribute to negative market sentiment in the near term.

Last week’s House-passed bill to cover the costs of COVID-19 testing and provide paid sick leave appears to be headed for a Senate vote as early as Tuesday after a last-minute delay threatened to derail the bill’s progress. Although this is a positive development to mitigate some social disruption, we expect a neutral market reaction as attention turns to a broader fiscal stimulus package.

Lawmakers discussing fiscal stimulus measures; expect weeks-long negotiations

Senate Majority Leader Mitch McConnell is asking for input from senators on significant fiscal stimulus measures and called the current House-backed package on its way to consideration by the Senate “just the beginning” of the Congressional response to the economic disruption of COVID-19. Senators are making their positions public as Minority Leader Chuck Schumer also outlined an upcoming relief package proposal in the $750 billion range to broadly provide income to workers through expanded unemployment insurance, provide funding to hospitals to expand capacity, pause payments on federal loans, and halt evictions. Senator Mitt Romney has also floated a cash infusion for consumers via a $1,000 check and temporarily requiring health insurers to cover the costs of telemedicine.

We expect more concrete details on the exact contours of a Senate fiscal stimulus package in the coming days, but negotiations are likely to take longer and conditions may have to deteriorate to an even greater degree for an accelerated time frame that is more in line with market expectations.

Conversations begin on a broad fiscal package

To highlight the difficulties ahead for lawmakers to come to agreement on the next phase of the response, the path forward for the strongly supported measure passed in the House last week looked highly uncertain on Monday before last-minute negotiations secured the necessary Senate support. Reports indicate that Secretary Steven Mnuchin has reached agreement with senators to vote on the “Families First Coronavirus Response Act” later this week after the House passed its technical corrections bill. The House bill (per the latest information; some minor adjustments could emerge as part of the corrections bill) will provide free testing, ensure 14 days paid sick leave for businesses with fewer than 500 employees, and expand unemployment assistance.

To further complicate matters on future negotiations, House leadership has signaled that lawmakers may not return to Washington, D.C., once their current recess period ends on March 23 and would instead be called back on an ad-hoc basis for votes.

Trump administration sharpens messaging, points to potentially longer timeline

The CDC is revising its recommended guidelines for avoidance of social gatherings of groups of 10 or more for the next 15 days. This is revised down from recommendations put out just yesterday of avoiding groups of 50 or more. President Trump also endorsed avoiding discretionary travel and keeping students out of schools when possible to limit the spread. While this is much sharper language than what’s been seen in recent weeks from the Trump administration, it still leaves the door open for a patchwork approach on the state and local level, which may ultimately lead to slow responses.

The president noted that a national quarantine order is not being considered “at this time.” While this may also heighten fears that mitigation efforts aren’t being taken, it demonstrates that an eventual national quarantine order remains a possibility. Trump’s remarks also expanded the potential timing for the nation to contain the outbreak – possibly seen to be spanning into July or August or beyond. The market reaction into Monday’s close may have partly been driven by that acknowledgement, as this is a deviation from the expectation of “weeks” communicated by White House officials.

Additional policy proposals from the White House in the coming days may provide more specifics on support for targeted industries (such as airlines, which the president remarked the government will stand behind “100%”). Airlines are reportedly seeking federal assistance in the range of $50-60 billion. A push for a payroll tax holiday is also expected to be part of the White house messaging, along with the previously announced steps on student loan interest deferments and energy purchases for the Strategic Petroleum Reserve (SPR).

All expressions of opinion reflect the judgment of Raymond James & Associates, Inc., and are subject to change. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur. Economic and market conditions are subject to change.