Last night the US Senate failed to reach an agreement on a USD 1.8 trillion coronavirus stimulus package. The package looks to be one of the largest in history to help businesses to re-establish themselves. What exactly does the stimulus package entail though? Here we examine the next steps of the stimulus package and how this has affected the (USD) US dollar.
What did the proposed coronavirus stimulus package entail?
It was last Thursday when the US Senate first proposed the coronavirus stimulus package. The package aims to revive American businesses that have been left battered by the coronavirus outbreak. The GOP is looking to provide business relief by cutting corporate tax and placing limits on paid sick leave. The US Senate is keen to get the package passed so that aid can take place immediately.
The package comes in addition to another emergency bill recently signed by US President Trump. The Families First coronavirus Response Act guarantees paid sick leave for particular US workers, food assistance and free testing for Covid-19.
Why is there a delay with passing the coronavirus stimulus package?
There has been quite a debate between Republicans and Democrats concerning the coronavirus stimulus package. The Democrats are concerned that the package does not adequately protect workers. They also argued that the package favoured large businesses and snubbed the working class, hence the failure to reach a decision last night. The reaction from the left was met with frustration from the GOP, stating that the delay would cause more Americans to lose their jobs.
The Democrats were also critical of the FFCRA bill stating that the paid sick leave excluded many Americans.
The stimulus package proposal fell short by 60 votes needed to pass. The US Senate will continue talks later today to reach a compromise and secure a bipartisan deal with the Democrats.
Senator, Mitch McConnell is placing pressure on the left to encourage progression with the passing of the package. He proposed for another vote to be called on Monday morning, but the Democrats declined. They stated that they did not want to be forced to make a decision so quickly.
McConnell is keen for progress to be made as soon as possible. Action must be made quickly as the US nation continues to struggle against the impact of coronavirus. He even went on to say that the Democrat’s contribution to the stimulus package delay is ‘failing the American people’.
The left must proceed carefully to avoid potentially facing political resistance. The Democrats don’t want to be seen as hindering aid to the nation, which is so desperately needed.
A new vote from the US Senate is due to take place at 1 pm today. The discussions will continue without five key Republican members, who are currently in quarantine. The Senators include Rand Paul, Mike Lee, Mitt Romney, Cory Gardener and Rick Scott. While the show must go on, their absence affected the number of ‘aye’ votes needed for the package to pass.
How is the delay affecting the US Dollar and world markets?
The failure to reach a unanimous decision with the stimulus package has caused an expected shake in the currency markets. The ‘dash for cash’ in the US dollar has declined as we see a 5% drop in US stock markets (at the time of writing). The American people eagerly await today’s second vote, hoping that the dollar can recover some ground.
The European markets have taken a tumble with the Europe Stoxx 600 down 4.5% as well as London’s FTSE 100. Major German and French stocks are also down 2 to 3%.
The Asian market has also been particularly affected, seeing some sharp falls. South Korea’s Kospi index fell 5.3%, Hong Kong shares dropped 4.9%, and the Shanghai Composite Index slid to 3.1%.
Economists have commented on how these movements in the markets are echoing those during the 2008 financial crisis. We are yet to see how the government’s fiscal stimulus plans worldwide will impact currency markets in the long term.
Coronavirus stimulus packages from other governments
It’s not just the US who are desperately trying to provide relief to their nation. The US Senate’s coronavirus stimulus package comes after the European Central Bank’s emergency package announced last week. ECB boss, Christine Lagard, announced that EUR 750 billion would be pumped into the economy. She stated that she will do everything possible to provide relief and that there are ‘no limits’ to her commitment to the euro.
Last week, Chancellor of the Exchequer, Rishi Sunak announced plans to release GBP 330 billion into the UK economy. The funding aims to support British businesses amid these unprecedented times. He even promised to release further funds, should this amount not be enough.
Further to this, he confirmed that the government would establish a coronavirus jobs retention scheme for all employers. The programme will cover 80% of wages, up to GBP 2,500 a month. The project will be active for three months but this could be extended and will backdate to 1 March.
Coronavirus stimulus packages are crucial in providing financial support to businesses as well as instilling confidence in society. Can the US reach a compromise before the nation is subject to further financial stress?