WASHINGTON, March 17 (Xinhua) -- As the COVID-19 pandemic roils U.S. stock markets and ripples through the economy, the Trump administration, fearing a looming recession, is scrambling to roll out a massive fiscal stimulus package.
At a White House news briefing Tuesday, U.S. Treasury Secretary Steven Mnuchin said he is working with lawmakers on a "significant" economic stimulus plan, which includes support measures for small businesses, airlines and hotels, as well as potential cash payments for working Americans.
The Trump administration had proposed a total aid package of 850 billion dollars, but discussions later included spending as much as 1.2 trillion dollars, Bloomberg reported, citing people familiar with the matter.
As the White House goes to Congress to push an economic relief plan, the U.S. Federal Reserve, meanwhile, has taken aggressive action.
The central bank on Sunday cut its benchmark interest rate by a full percentage point to near zero and pledged to increase its bond holdings by at least 700 billion dollars, amid mounting fears over the pandemic. Earlier on Tuesday, the Fed announced it would establish a Commercial Paper Funding Facility to support the flow of credit to households and businesses.
"There is nothing else left to do on the monetary side. No one should expect that the monetary stimulus will fix things," said Adam Posen, president of the Washington-based think tank the Peterson Institute for International Economics (PIIE).
"It will help some, and may put a floor under inflation and interest rates. But fiscal stimulus and direct help for affected sectors is necessary to get recovery," he said.
Echoing Posen's remarks, Krista Schwarz, an assistant professor of finance at the Wharton School of the University of Pennsylvania, told Xinhua that monetary policy as the primary tool to fight the virus' effects is comparable to "using a sledge hammer to hit a precisely placed pin."
"Beyond this, there is not much more that monetary policy can do, and it is fiscal policy that will have to take it from here," said Schwarz.
The number of confirmed COVID-19 cases in the United States has been climbing over the past few weeks, with more than 6,300 reported as of Tuesday night, according to a tracking tool developed by the Center for Systems Science and Engineering at Johns Hopkins University. The death toll has now surpassed 100.
Stock markets have recently shed trillions of dollars amid mounting fears of the spread of the coronavirus, leading to a historic sell-off on Monday and the third circuit breaker in a week being hit, before a rebound on Tuesday.
"The market is fearing what the implications of aggregate demand cratering due to the virus' outbreak in economically significant parts of the U.S. might mean," Sourabh Gupta, senior fellow at the Washington D.C.-based Institute for China-America Studies, told Xinhua.
There are also fears in the market around what the implications of the U.S. public health system's "significant capacity shortfalls" could mean in terms of an unchecked spread of the virus and its knock-on economic effects, Gupta said.
"The market is fearful that the economy is already in a late-business cycle phase, meaning a significant demand shock could tip it into recession," he said.
The outbreak has disrupted major U.S. industries, as the government has advised Americans to reduce social gatherings, more companies are adopting work-from-home policies, many universities and schools are closed, and some state and city officials have banned in-person dining at restaurants and bars.
Noting that discretionary consumption accounts for some 39 percent of gross domestic product (GDP), Ian Shepherdson, chief economist at Pantheon Macroeconomics, said a 20-percent plunge in discretionary consumers' spending in the second quarter will alone subtract some 8 percentage points from GDP growth.
"We now guesstimate that second quarter GDP will drop at a 10-percent annualized rate, after a 2-percent fall in Q1," said Shepherdson.
Alan Blinder, a former Federal Reserve vice chairman and now a professor at Princeton University, said last week that the United States is probably already in recession due to the "fear-induced slowdown" from the coronavirus, according to a CNBC report.
"I wouldn't be one bit surprised if when we look back at the data, it is decided ... that the recession started in March," Blinder said.
Even President Donald Trump, who has repeatedly touted a strong economy, said Monday that the country's economy "may be" heading toward a recession.
PIIE's Posen, meanwhile, believes that the U.S.' growth rate is expected to halve to around 1.0 percent over the next six months, though several factors are likely to determine whether there is going to be a recession.
"We go into real recession if the fiscal response is poor or delayed, the uncertainty about U.S. government ability to manage the virus -- to bend the curve -- remains high, and/or the irrelevant-to-the-health-crisis lashing out of the Trump Administration worsens international commerce," Posen said.
