Newsletter: Stimulus Plans

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The Federal Reserve wraps up a two-day meeting with a policy statement and press conference, and lawmakers are trying to pass a fifth round of coronavirus stimulus—with key benefits set to run out on Friday. Good morning. Jeff Sparshott here to take you through the latest developments in the global economy.

Where’s My $1,200?

The good news: President Trump and lawmakers agree that Americans should get a second round of direct payments as part of fresh coronavirus-relief legislation. Senate Republicans included checks in their proposal this week, similar in many ways to Democrats’ proposal from May, Andrew Duehren reports.

The bad news: Congress now needs to negotiate and reach a deal to pass legislation that includes the checks, and then Mr. Trump needs to sign it into law. Right now, Republican senators are divided over the scope and scale of aid needed to keep the economy afloat—and over whether their party’s precarious standing in polls justifies setting aside ideological concerns about the fast-growing federal deficit. The situation complicates the party’s negotiations with Democrats, Lindsay Wise and Siobhan Hughes report.

WHAT TO WATCH TODAY

The U.S. advance economic indicators report for June is out at 8:30 a.m. ET.

U.S. pending-home sales for June are expected to jump 12.5% from the prior month. (10 a.m. ET)

The Federal Reserve issues a policy statement at 2 p.m. ET and Chairman Jerome Powell holds a news conference at 2:30 p.m. ET.

TOP STORIES

Workin’ All Summer Just to Try and Earn a Dollar

One big source of disagreement between Republicans and Democrats: whether to scale back unemployment aid for workers laid off during the coronavirus pandemic. Senate Republicans advocate cutting the weekly benefit to $200 from $600, saying the larger payments are keeping workers on the sidelines because many receive more in jobless aid than they did working. Senate Democrats have proposed keeping the $600 a week payments temporarily and shrinking them as the economy improves. What do economists say? So far they don’t see evidence the payments are affecting the rate at which people are returning to work during the pandemic. A study published this month by Yale University economists found workers with more generous jobless benefits didn’t experience larger employment declines when the benefits took effect, and they have returned to their previous jobs at similar rates as others, Kate Davidson reports.

More differences: Here’s how the Republican and Democratic plans compare.

Federal stimulus and unemployment payments have been a key support for consumer spending, which in turn is a key driver of the U.S. economy. Even so, second-quarter U.S. gross domestic product numbers due out Thursday are going to be ugly. Economists are expecting a 34.7% annualized decline in output, the worst post-World War II drop on record.

A look at underlying data that go into the GDP report suggests a severe contraction in March and April, followed by the start of a V-shaped recovery in May and June. What comes next is key for the recovery. Unfortunately, Thursday’s GDP report won’t tell us and more recent measures are at best mixed. The housing market appears to be rebounding and manufacturing activity perked up during the opening weeks of July.

But consumer confidence has deteriorated as Covid-19 cases increased, some states and cities put on hold or reversed reopening plans, and the labor market started to show cracks. Already there are signs small-business reopenings have stalled.

Thursday’s weekly jobless claims report will be more timely than GDP and closely watched to see if layoffs are accelerating. Economists are forecasting 1.45 million applications for unemployment insurance, which would be the second straight increase. 

The Fed’s Next Steps

The Federal Reserve isn’t expected to roll out new stimulus measures today. Policy makers are debating how to provide more support to the economy once the outlook becomes clearer. Chairman Jerome Powell could preview officials’ latest thinking at a news conference, including shifts in their view of the economy, potential changes to forward guidance for interest rates, possible changes to the central bank’s bond-buying program and insight on a yearlong review of the Fed’s long-run policy-setting strategy, Nick Timiraos reports.

Grand Tour

Some European governments are warning that a recent surge in coronavirus infections could burgeon into a second wave. This spring, many European countries pursued draconian lockdowns that brought infections down from several thousand a day in some nations to several hundred. Governments in Europe gradually lifted the Covid-19-related restrictions in the run-up to the summer, while nations heavily dependent on tourism revenues started welcoming visitors earlier starting in June. The renewed circulation of people, both within countries and internationally, has contributed to an increase of infections that is now threatening to reignite the pandemic. A number of governments are reinstating restrictive measures and warning their citizens against vacationing in affected regions, Bojan Pancevski reports.

WHAT ELSE WE’RE READING

How is the phase-one trade deal between the U.S. and China going? “Through the first six months of 2020, China’s purchases of all covered products were only at 47% (U.S. exports) or 47% (Chinese imports) of their year-to-date targets,”  Chad Bown writes at the Peterson Institute for International Economics.

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