“At this point, a major stimulus package before the election looks like a long shot,” Goldman Sachs economists wrote in a note Friday.
Goldman Sachs now expects Congress to depart Washington at the end of September without extending any stimulus, such as enhanced unemployment insurance payments, direct stimulus checks to households, aid to state and local governments or additional Paycheck Protection Program (PPP) loans to small businesses.
That means economists, who had assumed Uncle Sam would provide another $1 trillion-plus in relief, may be overly optimistic on the economy.
‘Running out of steam’
Goldman Sachs said that Congressional failure to pass additional fiscal stimulus will force the Wall Street bank to downgrade its US economic growth forecast for the fourth quarter. By contrast, adoption of stimulus packages similar to the ones backed by President Donald Trump or House Speaker Nancy Pelosi would cause the bank to boost its economic outlook.
“The economy seems to be running out of steam in the last few weeks,” Greg Valliere, chief US policy strategist at AGF Investments, wrote in a note to clients Friday. “Recent data have reinforced an overwhelming view among experts — including Fed Chairman Jerome Powell — that more stimulus is urgently needed from Congress.”
“Without a stimulus package, more small businesses will close, state and local governments will lay off thousands of workers, and evictions will increase,” Valliere wrote.
Powell presses for aid
For all those reasons, Powell, the chairman of the Fed, has pressed lawmakers to act.
The Fed chief noted that there are still about 11 million Americans out of work because of the pandemic — and many worked in industries that are likely to struggle.
“Those people may need additional support as they try to find their way through what will be a difficult time for them,” Powell said.
Growth is expected to decelerate in the final three months of the year, especially now that stimulus odds have faded, Goldman Sachs said. The bank previously projected fourth-quarter GDP growth of 6%. It did not detail how much it will downgrade growth projections.
Blame politics
So why isn’t Congress acting? Not surprisingly, many are blaming pre-election partisan bickering.
“The election outlook might be influencing positions in the negotiation,” Goldman Sachs economists wrote.
The Wall Street bank noted that prediction markets, polls and external election models imply that a Democratic sweep of Congress and the White House is the “most likely outcome.”
If Congressional Democrats believe that a Blue Wave is coming, “they…
Read More: The US economy needs more help. Congress is too divided to provide it