The ongoing COVID-19 pandemic is a global economic event without precedent in living memory. Many affected countries have already imposed severe restrictions on residents’ movements and activities, including but not limited to curbs on international air travel, forced closures of public gathering spaces like restaurants and entertainment venues, and public curfews during which all but essential movement is forbidden.
Public health experts generally agree such measures are necessary to slow the spread of the disease and limit strain on health care systems. But the total shutdown of broad swathes of the global economy is all but certain to have profound economic impacts. Most economists expect a sharp slowdown in global growth in 2020 and perhaps beyond, with many countries tipping into recession. Millions of people in the travel, entertainment, and hospitality industries could lose their jobs or see drastic income declines.
In the United States, federal policymakers recognize the gravity of the situation. During March 2020, three pillars of the federal government and national financial system took action on the crisis: Congress, the executive branch, and the Federal Reserve (the Fed). Their actions are listed and summarized below, along with general guidance on what the moves mean for American workers, consumers, and small-business owners.
This is a fast-moving situation, so check back here frequently for updates.
On March 6, President Donald Trump signed into law the Coronavirus Preparedness and Response Supplemental Appropriations Act.
The following week, in the early hours of March 14, the U.S. House of Representatives passed the much larger Families First Coronavirus Response Act. That bill is expected to become law during the week of March 16, although negotiations between the House and Senate could lengthen that timeframe.
Coronavirus Preparedness & Response Supplemental Appropriations Act
The Coronavirus Preparedness and Response Supplemental Appropriations Act provides $8.3 billion in emergency funding for the U.S. and international response to COVID-19, the illness caused by the new coronavirus.
The government has earmarked about 80% of the supplemental’s appropriation for the domestic response. The remainder is for the international response, with most of that portion going to crucial United States Agency for International Development programs to shore up COVID-19 responses in less developed parts of the world. About $264 million will go to the U.S. Department of State’s efforts to support U.S. consular operations and emergency evacuations across the globe.
The supplemental’s domestic appropriation includes several major funding buckets:
- $3.4 Billion for the Department of Health and Human Services’ Public Health and Social Services Emergency Fund. This allocation covers funding for the development of vaccines, treatments, and diagnostic tests for COVID-19. It also includes health care center grants, which aim to improve medical care for geographically isolated or vulnerable populations.
- $1.9 Billion for the Centers for Disease Control and Prevention (CDC). This allocation replenishes the CDC’s Infectious Diseases Rapid Response Reserve Fund and funds state and local responses to the outbreak.
- About $835 Million for the National Institute of Allergy and Infectious Diseases and About $60 Million for the Food and Drug Administration (FDA). These allocations also cover funding for vaccine and treatment development. The FDA’s portion could help address medical supply chain issues as well.
- $20 Million for the Small Business Administration (SBA)’s Disaster Loans Program. These loans provide financial assistance to businesses and entities affected by the outbreak.
- About $500 Million (Estimated) for Expanded Telemedicine at Medicare Providers. This provision relaxes restrictions on Medicare providers’ telemedicine operations. It allows them to provide telemedicine services to Medicare beneficiaries regardless of location. Previously, Medicare providers limited telemedicine offerings to beneficiaries in rural areas.
What It Means for You
The Coronavirus Preparedness and Response Supplemental Appropriations Act is a targeted package intended to shore up the U.S. government’s response to a rapidly worsening pandemic. Those not eligible for SBA disaster loans or enrolled in Medicare won’t see significant changes to daily life as a result of its enactment. However, in the long run, all Americans stand to benefit from the development of effective COVID-19 treatments or vaccines.
Families First Coronavirus Response Act
On March 14, the U.S. House of Representatives passed the Families First Coronavirus Response Act (FFCRA). The U.S. Senate passed a corrected measure on March 18, sending the bill to the White House for Trump’s signature.
The FFCA is much broader in scope than the supplemental act. Its core provisions, such as expanded unemployment insurance and paid sick leave for certain workers, are open-ended, rendering its total cost impossible to project until the full scope of the pandemic is clear.
According to a House summary of the bill, the FFCRA includes seven major divisions. Some of the bill’s provisions changed as a result of the technical changes negotiated by the House and White House to ensure bipartisan support. The most notable of these changes was the scaling back of paid sick leave for those affected directly or indirectly by COVID-19.
- Second Coronavirus Preparedness and Response Supplemental Appropriations Act. This act expands funding for several federal nutrition assistance programs, including Special Supplemental Nutrition Program for Women Infants and Children (WIC) and The Emergency Food Assistance Program (TEFAP), for families affected by COVID-related job losses, layoffs, and school closings. It also provides nutrition assistance financing for low-income seniors and directs multiple federal agencies to offer COVID-19 diagnostic testing at no charge to employees, service members, and the uninsured.
- Nutrition Waivers. This division loosens restrictions on in-person and location-based service for multiple federally funded nutrition assistance programs. For instance, it allows child and adult care centers to provide meals to go, rather than on-site only. This division also waives state work and work training requirements for beneficiaries of the Supplemental Nutrition Assistance Program (SNAP), where they exist.
- Emergency Family and Medical Leave Expansion Act. This act amends the Family and Medical Leave Act to require employers with fewer than 500 employees and all government employers to provide up to 12 weeks of paid family leave to provide child care due to school closures or absence of other child care arrangements.
- Emergency Unemployment Insurance Stabilization and Access Act of 2020. This act shores up state unemployment insurance funds in anticipation of layoffs and business closings related to COVID-19. Among other provisions, it includes full federal funding (rather than the typical 50%) for unemployment benefits paid during the 26-week extended benefits period triggered when a state’s unemployment rate increases by more than 10% over the prior year.
- Emergency Paid Sick Leave Act. This act requires employers with between 50 and 500 employees and all government employers to provide employees quarantining due to COVID-19 symptoms or exposure with two weeks of paid sick leave at the employee’s regular rate.
- Health Provisions. This division requires private health plans and government health care payers, such as Tricare and Medicare, to cover the full cost of COVID-19 diagnostic testing. Essentially, it establishes free COVID-19 testing for all Americans.
- Tax Credits for Paid Sick Leave and Paid Family and Medical Leave. This division helps defray the cost of the paid sick leave and family and medical leave provisions. Its benefits include refundable tax credits to businesses and self-employed individuals that give employees (or themselves) paid sick or family leave.
What It Means for You
Millions of Americans are likely to utilize or benefit from the FFCA in some capacity. This includes:
- Anyone who takes a COVID-19 diagnostic test
- Anyone who files for unemployment insurance after a layoff or furlough during the pandemic
- Anyone who qualifies for paid sick leave under the Emergency Paid Sick Leave Act
- Anyone who takes job-protected leave under the Emergency Family and Medical Leave Expansion Act
- Anyone who benefits from SNAP job requirement waivers
- Anyone who benefits from the National School Lunch Program and WIC waivers or other supplemental nutrition program provisions
- Businesses affected by any of the FFCA’s employment provisions
On March 27, President Trump signed into law a sweeping economic stimulus package called the CARES Act. The total expected cost of the mammoth law is $2.2 trillion, making it the largest single stimulus measure in U.S. history. Per CNN, its major provisions include:
- Cash Payments to Individuals. The CARES Act’s hallmark is a provision for one-time cash payments to lower- and middle-income Americans, including those with no taxable income at all in recent years. Adult taxpayers with adjusted gross incomes under $75,000 and married-filing-jointly taxpayers with adjusted gross incomes under $150,000 receive $1,250 per person. Each qualifying child receives $500. Above the adult income thresholds, payments phase out. They disappear completely for single filers earning more than $99,000 and married filers earning more than $198,000.
- Expansion of Unemployment Benefits. The CARES Act gives unemployed workers $600 in additional unemployment assistance per week for four months, more than doubling the typical state unemployment insurance payment. The act also provides for 13 additional weeks of unemployment benefit payments on the federal dime.
- Aid for Hospitals and Healthcare Programs. The CARES Act creates a $100 billion public health fund to cover providers’ expenses and lost revenues during the pandemic. It also boosts COVID-related Medicare reimbursements by 20% and eliminates planned payment reductions to hospitals with large populations of uninsured and Medicaid patients.
- Air Travel Industry Bailout. The CARES Act provides $32 million in grants and $29 million in loans to airlines, air cargo carriers, and aviation industry contractors. The aid comes with significant strings attached, including a requirement that airlines continue flying routes they’d normally cancel due to reduced demand and a prohibition on stock buybacks, dividend payments, employee furloughs, and pay cuts through September. The bill also limits executive compensation for bailed-out airlines’ leaders.
- Business Lending Program and Tax Credits. The air travel industry bailout is part of a $500 billion support package for private companies and municipalities. The program favors nonprofits and businesses with between 500 and 10,000 employees with a six-month grace period on loan repayments. Loan terms are capped at five years, and the loans themselves come with strings, including a prohibition on dividend payments for a year after receiving funds and a requirement that businesses maintain 90% of their March 24 headcount through September 30. Companies with 500 employees or fewer are eligible for up to eight weeks of cash flow assistance if they maintain their payrolls. The act includes provisions waiving or delaying employer-side payroll taxes as well, though eligibility is not uniform.
- Foreclosure and Eviction Suspension. The CARES Act allows homeowners with federally backed mortgage loans to claim forbearance for an initial period of 60 days and up to four extension periods of 30 days each: up to 180 days in all. Landlords with federally backed mortgage loans cannot evict tenants for failure to pay rent for 120 days, nor can they charge fees or penalties for unpaid rent.
- Support for the Emergency Food Assistance Program and Other Emergency Nutrition Programs. The CARES Act provides an additional infusion of $450 million to the federal Emergency Food Assistance Program, which purchases and distributes food to needy Americans. It also earmarks $200 million in food assistance specifically for Puerto Rico, which is still recovering from Hurricane Maria and the subsequent collapse of its electric grid, and $100 million in food assistance for American Indian reservations.
Future Federal Legislation to Combat Coronavirus Fallout
Members of Congress, the president, and executive branch agency heads have proposed numerous measures to combat the economic and human toll of the COVID-19 outbreak. Two of the most notable are:
- Other Industry Bailouts. Other bailout or economic support candidates include the hospitality industry (hotels and restaurants) and the energy industry, which has been devastated by cratering oil prices.
- Further Cash Payments to Individuals. Even as she assured the public that the House would act swiftly to pass the CARES Act, House Speaker Nancy Pelosi previewed further rounds of direct cash payments to individual taxpayers. “I don’t think we’ve seen the end of direct payments,” she told reporters on March 26, according to CNBC. Several lawmakers have proposed monthly cash payments until the crisis passes.
- Infrastructure Investment. Speaker Pelosi and President Trump both support massive infrastructure investment to mitigate unprecedented job losses and capitalize on historically low interest rates. According to CNBC, Pelosi expressed optimism that the House would take up an infrastructure package shortly after returning to Washington on April 20. A previous CNBC report indicated the package would be based on an existing Democratic proposal to invest about $760 billion in transportation, water, broadband Internet, and community health infrastructure over five years.
Executive Branch Action
The executive branch of the U.S. government first took action to slow the spread of COVID-19 in late January with the suspension of noncitizen entry from China, which had the most concentrated outbreak at the time. Much broader restrictions on entry from Europe followed in the second week of March, leading to the effective shutdown of trans-Atlantic air travel between the U.S. and Europe for at least 30 days.
These measures couldn’t stop the spread of COVID-19 within the United States, where person-to-person transmission was confirmed to occur as early as late January, according to a White House statement.
Trump’s declaration of a national emergency on March 13 is also unlikely to slow the spread of the disease. But the emergency declaration does free up $50 billion in sorely needed resources and provide the federal government with additional powers to respond to the evolving crisis, according to Politico. Most important for the average American, the declaration allows the U.S. Department of Health and Human Services to waive potentially burdensome requirements imposed by three major federal health care programs: Medicare, Medicaid, and the Children’s Health Insurance Program. That could improve the speed and quality of health care to beneficiaries of those programs.
After announcing the emergency declaration, Trump also suggested the federal government would temporarily waive interest on federal student loans and add to the country’s strategic stockpile of crude oil.
What It Means for You
Much depends on how the federal government utilizes the powers provided by Trump’s emergency declaration. It’s easier to predict the effects of specific measures Trump indicated the government could take.
For example, reallocating 100% of federal student loan payments to principal repayments could shorten payoff times and lifetime borrowing costs for millions of graduates. Strategic crude oil purchases could support global energy markets, marginally increasing prices for transportation fuels, electricity, and climate control.
Federal Reserve Measures
The Federal Open Market Committee (FOMC) sets monetary policy for the Federal Reserve System, including the short-term rates at which commercial banks lend money to other banks, known as the federal funds rate.
In March, the FOMC held two unscheduled meetings to address the economic fallout from the COVID-19 crisis by lowering the federal funds rate and committing to additional measures to shore up the financial system.
March 3: Emergency Rate Cut, 50 Basis Points
According to an announcement from the Fed, the Federal Reserve Board voted unanimously to reduce the federal funds rate by 50 basis points (0.50%) to 1.10%, effective March 4.
The board also voted to reduce the primary credit rate by 50 basis points to 1.75%. Also known as the discount rate, the primary credit rate is the rate at which commercial banks and other depository institutions borrow from regional Fed banks.
What It Means for You
Reductions to the federal funds rate and primary credit rate ripple through the financial industry almost immediately. If you use any sort of variable-rate credit product, such as a credit card, or have funds on deposit in an interest-bearing bank account, you’re likely (but not guaranteed) to see corresponding reductions to your accounts’ interest rates within weeks (and sometimes within days) of the Fed’s decision to lower rates.
For consumers and entrepreneurs, these reductions’ impacts can be positive or negative — and are often both. On the positive side, lower federal rates not only reduce rates on variable-rate products but depress rates on fixed-rate products as well, including conventional fixed-rate mortgages, auto loans, and personal loans. On the negative side, lower federal rates usually lead to lower rates on FDIC-insured deposit accounts, including high-yield savings accounts and CDs — though the best online banks do what they can to offer higher yields than competitors.
March 15: Emergency Rate Cut, 100 Basis Points
On March 15, the Federal Reserve Board voted to reduce the federal funds rate by 100 basis points (1%) to between 0.00% and 0.25%, according to the Fed.
At the same unscheduled meeting, the board voted to increase purchases of mortgage-backed securities by no less than $200 billion and increase purchases of Treasury securities by no less than $500 billion. They hope these moves can maintain smooth functioning in the country’s credit markets, which have come under strain due to COVID-19.
What It Means for You
In normal economic times, a rock-bottom federal funds rate promotes borrowing by businesses and consumers while encouraging investors to put money to work in the stock market, where the long-term historical rate of return is significantly higher than interest-bearing bank or cash management accounts.
But the COVID-19 pandemic does not qualify as “normal economic times,” so the jury remains out on just how effective the Fed’s moves will prove. That said, if you’re thinking about buying a house or car, taking out a personal loan to fund a home improvement project or other significant expense, or refinancing your current mortgage, the present low-rate environment is an excellent time to do so. If you feel financially secure, that is.
COVID-19’s rapid global spread became impossible to ignore in late February. In the weeks since, the federal government has taken action to shore up the foundations of the American economy and bolster the health care system’s response to what could turn out to be the worst respiratory disease pandemic in a century. The Fed has taken decisive action of its own.
Some state and local governments have taken actions of their own, complementing and reinforcing the steps taken by the federal government. In light of COVID-19’s ongoing spread and mounting economic toll, the actions we’ve seen thus far are unlikely to be the last.
Meanwhile, the public has a vital role to play. Whether your economic situation or livelihood is directly affected by COVID-19 or not, you can do your part to slow the disease’s spread by avoiding large crowds, working from home whenever possible, and avoiding close contact with vulnerable populations (such as the elderly) while ensuring they have what they need to wait out months of effective isolation.
Has the ongoing coronavirus pandemic affected your economic situation? What financial aid and stimulus packages would you like to see passed?