As a reminder, the $600 additional federal unemployment provisions are set to expire next week. I think we can safely assert, that no matter how robust the employment recovery is, that it is utterly impossible for the employment picture to magically revert to where we were in January 2020. Thus, there are going to be millions of unemployed workers about to hit a wall in 10 days or so.
We tend to avoid overtly political speculation for a variety of reasons. First, it’s all based on educated guesses. Second, talking about politics in the best of circumstances can get people riled up. Still, we can’t avoid making some educated guesses about what’s going on in Washington DC right now. In the broadest possible terms, Democrats tend to prefer expanding the social safety net. Moreover, inflation is likely to be very constrained given the slack in the economy, which should assuage the Republicans, who historically have preferred to reduce social services. Given this seeming high alignment between political adversaries, you might expect a bill to extend some unemployment benefits to have been enacted by now, but it has not. Moreover, there is time pressure here. Not only are benefits set to expire by the end of the month, but Congress takes a recess during the month of August. So, if there isn’t a deal made in the next week, there isn’t likely to be a bill anytime during the next month – with high consequences for many Americans already bearing additional burdens.
What’s going on? Well, 2020 is an election year. Some Republicans are scared to reduce the safety net too sharply given the extraordinary economic pullback – there will be high political fallout for failing to get something passed quickly. Democrats may sense this reality and use their additional leverage to get additional concessions for whatever bill ultimately makes it to the floor of Congress. All is still from Congress at the moment, but we expect there is a whirlwind of heated and desperate negotiations occurring under the calm surface.