U.S. Markets open in 9 hrs 10 mins
  • S&P Futures

    3,662.50
    -4.75 (-0.13%)
     
  • Dow Futures

    29,828.00
    -40.00 (-0.13%)
     
  • Nasdaq Futures

    12,466.25
    +12.00 (+0.10%)
     
  • Russell 2000 Futures

    1,832.50
    -5.00 (-0.27%)
     
  • Crude Oil

    45.17
    -0.11 (-0.24%)
     
  • Gold

    1,837.70
    +7.50 (+0.41%)
     
  • Silver

    24.14
    +0.06 (+0.25%)
     
  • EUR/USD

    1.2126
    +0.0010 (+0.0849%)
     
  • 10-Yr Bond

    0.9480
    +0.0140 (+1.50%)
     
  • Vix

    21.17
    +0.40 (+1.93%)
     
  • GBP/USD

    1.3384
    +0.0008 (+0.0602%)
     
  • USD/JPY

    104.4680
    +0.0440 (+0.0421%)
     
  • BTC-USD

    19,062.74
    -18.60 (-0.10%)
     
  • CMC Crypto 200

    374.10
    +9.19 (+2.52%)
     
  • FTSE 100

    6,463.39
    +78.66 (+1.23%)
     
  • Nikkei 225

    26,762.84
    -38.14 (-0.14%)
     

What a Biden administration means for the next stimulus package

Anne Sraders, Lance Lambert
·5 min read

The gridlocked stimulus negotiations on Capitol Hill just got a major shake-up: a Joe Biden win.

Since July, the White House, Senate Republicans, and the Democratic-controlled House of Representatives have failed to reach a deal on a second massive stimulus package. Democratic leaders came down from their $3.4 trillion ask to $2.2 trillion, while White House came up from under $1 trillion to $1.9 trillion. But the two sides never reached a final agreement as they battled over the size and scope of the package. And even had the two sides come to terms, it was never clear if fiscally conservative Senate Republicans would be on board.

Now, an incoming Biden administration is already changing the dynamics of stimulus debates. The Democratic President-elect made it clear during the campaign that he favored a larger stimulus package, like the one put forward by House Democrats.

But a lot of this hinges on who takes control of the Senate. Republicans are expected to get to 50 seats—if you give them uncalled races in North Carolina and Alaska, where they’re currently leading. Meanwhile, Democrats are currently at 48 seats, and control of the chamber will likely come down to a pair of Republican Georgia Senate seats going into runoffs in early January. If Republicans hold one Georgia seat, they retain the chamber. If Democrats take both, they’d have power of the 50–50 spilt chamber through the tie-breaking vote the Constitution grants the Vice President (now Vice President–elect Kamala Harris).

It’s unclear who is favored in the Georgia races. But if Democrats manage to win both seats, they’ll have control of the White House and congressional legislative bodies. That means after Biden’s inauguration in January, they could move forward with a possibly larger package that includes more than $1 trillion for state and local government, a second round of $1,200 stimulus checks, enhanced unemployment benefits, and funding for testing and hospitals. In that scenario, Mark Zandi, chief economist at Moody’s Analytics, thinks “lawmakers will quickly agree to spend close to another $2 trillion to shore up the economy,” he wrote in a note Monday.

Zandi speculates a Democratic Senate could also pave the way for another stimulus deal in the summer of 2021. He sees that deal also costing around $2 trillion, focused on getting the U.S. back to full employment with support for government spending projects like infrastructure.

But if Republicans win one of the Georgia runoffs and retain the Senate, the stimulus package might be much smaller, perhaps even less than the $1.9 trillion offered by the White House. Senate Republicans from the get-go were uncomfortable going over $1 trillion, and twice they voted on a more modest $500 billion package—which Senate Democrats blocked both times. House Speaker Nancy Pelosi still calls that bill a “nonstarter.”

And if Republicans retain control of the Senate, others like Michael Reynolds, investment strategy officer at Glenmede Trust, believe that a smaller package could come during the lame-duck session that acts as “a stop-gap measure to make sure in the short run, people are getting what they need with enhanced unemployment insurance or if they do another round of stimulus checks,” with the possibility of further stimulus being passed later.

When Trump was running for reelection and—presumably—seeking a campaign boost from stimulus talks, Democrats had lots of leverage to push the White House to offer more. And it was working: The White House was eager to reach a deal as the election neared and quickly upped its offer from $1 trillion to $1.9 trillion, while Pelosi held firm at her request of $2.2 trillion. But that leverage is gone now, and it will likely be harder to get reelected Mitch McConnell on board with a larger package.

Another factor that could potentially stand in the way of a larger bill, Glenmede’s Reynolds argues, is that improving unemployment numbers might hinder the urgency of another bill in the minds of some on Capitol Hill. Case in point: On Friday, we learned the unemployment rate dropped from 7.9% in September to 6.9% in October.

“Republicans are seeing the unemployment report…and maybe thinking that [stimulus] doesn’t need to be as big as initially expected in terms of the size of the package,” Reynolds said.

On Wednesday, McConnell said another deal was needed and “we need to do it before the end of the year.” But following the strong October jobs report on Friday, McConnell told reporters the economy could use more modest stimulus—not another massive package like the $2.2 trillion CARES Act passed in March.

“Something smaller, rather than throwing another $3 trillion at this issue, is more appropriate,” McConnell said. But that idea was quickly rebuffed by Democrats: Pelosi told reporters on Friday a smaller deal “doesn’t appeal” to her.

More must-read finance coverage from Fortune:

This story was originally featured on Fortune.com