WASHINGTON – Advisors to President-elect Joseph R. Biden Jr. predict the growing likelihood that the US economy is heading into a “double dip” recession early next year. They are pushing for Democratic leaders in Congress to strike a quick stimulus deal with Republicans in the Senate, even if it does not fit the broader package Democrats were seeking, according to people familiar with the talks.
So far, Mr Biden, President Nancy Pelosi of California and Senator Chuck Schumer of New York, the Democratic leader, have insisted that Republicans agree to a spending bill of $ 2 trillion or more, while that Sen. Mitch McConnell of Kentucky, the majority leader, wants a much smaller package. The resulting standoff threatened to delay further economic aid until after Mr Biden’s inauguration on January 20.
Many advisers to the president-elect have become convinced that the deteriorating economic conditions due to the surge in Covid-19 infections and the looming threat of millions of Americans losing unemployment benefits in December amid a wave of evictions and foreclosures require more urgent action before the end of the year. . It could mean at least part of the way towards Mr. McConnell’s offer of a $ 500 billion package.
But the main Democrats remain publicly adamant that Republicans need to move closer to their opening bid of $ 2.4 trillion. Mr Biden, Ms Pelosi and Mr Schumer have given no public indication of their willingness to reduce their ambitions in order to reach a deal with Mr McConnell, arguing the Republican leader was unwilling to compromise .
“The Covid-19 pandemic and economic recession will not end without our help,” Ms Pelosi and Mr Schumer wrote in a letter this month, asking Mr McConnell to resume negotiations. “It is essential that this bill be adequately funded and provide significant relief to the many Americans who are suffering.
Mr Biden’s team is also considering a range of other policy options to tackle a new recession and the prospect of rising unemployment when he takes office, according to people familiar with his plans. Some of them, like a sweeping spending bill that includes all or much of his infrastructure campaign proposals, may hinge on the Democrats winning the Senate in two special elections in Georgia in January.
Others would not need Congress. Mr Biden’s aides weighed in as the president-elect announces in the coming weeks that he will sign executive orders on the first day of his term extending moratoriums on evictions and foreclosures, and the postponement of some payments of student loans that will expire at the end. of the year, said those familiar with the discussions. He could also announce that he will sign an order providing for a more gradual payroll tax schedule that some employers, including the federal government, had postponed to 2021 under an executive order issued by President Trump.
Such orders could mitigate or avoid an economic cliff of expired protections for tenants, landlords and some borrowers, which experts say could accelerate an economic contraction.
The Biden team is also exploring how to get around a last-minute Trump administration move to end Federal Reserve lending programs that helped stabilize markets by forcing the central bank to return hundreds of billions of dollars. at the Treasury Department, sources said. familiar with discussions. One possibility would be for Mr. Biden’s Treasury to reissue that money to the Fed under new parameters intended to encourage more aid to small and medium businesses than previously provided.
But the most important step could be the speedy approval by Congress of a stimulus bill.
“There needs to be some emergency aid and some help during the lame session to help families, to help small businesses,” Jen Psaki, a transition aide from Biden, said Friday before a meeting with Mr. Biden, vice-president. -President-elect Kamala Harris. , Ms. Pelosi and Mr. Schumer. “There is no more room for delays and we have to move forward as quickly as possible.”
A reading from the meeting said Mr Biden and other Democrats “agreed Congress should pass a bipartisan emergency aid package during the lame session” but did not indicate which package size was warranted .
The economy returned to growth in the second half of this year after falling into a sharp and rapid recession. But weak retail sales growth in October, a surge in UI claims last week, and a weeks-long decline in employment and hours worked in small businesses across the country have increased the chances that the economy could fall back into recession.
“The pandemic is raging and it’s starting to wreak havoc again,” said Mark Zandi, economist at Moody’s Analytics.
Economists close to Mr Biden and his campaign are circulating a spreadsheet with new projections from Mr Zandi, which predict the economy will start contracting again in the first half of next year, unless lawmakers do not emerge from a prolonged impasse in the stimulus negotiations.
Such a reversal would result in what economists are calling a double-dip recession, even as pharmaceutical companies prepare to distribute Covid-19 vaccines that lawmakers and economists hope will curb the pandemic and bring the economy back. towards rapid growth at the end of next year or in 2022. According to Zandi, companies will cut 3 million jobs in the first half of 2021 and the unemployment rate will drop from its current rate of 6.9% to around by 10%.
Jared Bernstein, an economist at the Center on Budget and Policy Priorities who was part of Mr. Biden’s inner circle of economic aides in the campaign, said “speed, size and composition are all important” in a stimulus deal, “But speed is especially important.”
A dispute over the size of the package stalled discussions for months. Democrats have rejected several Republican Senate proposals – the latest at around $ 500 billion – as insufficient to meet the needs of the economy, especially because they do not include money for state and local governments to fill budget gaps and avoid layoffs in the public sector. Mr Zandi said such a package “can barely get you up to a vaccine,” but risks running out when the economy still needs help.
Several Republicans have expressed distrust of spending much more, revisiting concerns about the national debt and insisting the economy is improving.
“We want to reach agreement on all areas where compromise is within reach, send hundreds of billions of dollars to urgent and uncontroversial programs and let Washington wrangle the rest later,” Mr. McConnell in a speech in the Senate. this week, mocking the Democratic offer. “By playing it all or nothing with such a radical proposal, our colleagues have so far ensured that American workers and families get nothing at all.
The legislative window before the start of the next Congress in January is rapidly tightening, leaving much doubt that a stimulus package could be passed before the end of the year. Much of the spending talk has focused on avoiding a government shutdown and approving the dozen or so annual spending bills needed. There is about a week of planned legislative days left, during which lawmakers will need to pass legislation to fund the government beyond December 11. It’s unclear whether either chamber will stay in Washington if that deadline is met, particularly when Capitol Hill struggles to stem the spread of the coronavirus among the base.
Economists are increasingly emphasizing the need for lawmakers to act quickly, even if it means reaching agreement on a smaller package. A bipartisan group convened by the Aspen Institute’s Economic Strategy Group – comprising former Treasury secretaries in the Democratic and Republican administrations – urged lawmakers on Thursday to approve a package that included help for small businesses, individuals and citizens. state and local governments, saying the economy ‘can’t wait until 2021’ for relief.
“What really worries me are the millions of people who are going to be without food or homes during the winter,” said Melissa S. Kearney, the economist who heads the strategy group. “This level of individual suffering, really, for me, should be everyone’s priority and make them overcome their political differences.”
Nicholas Fandos and Thomas Kaplan contributed reporting.