Wed. Nov 30th, 2022


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Opinion | The Relief Bill’s Biggest Blind Spot

4 min read

Congress’ long-awaited new pandemic relief package, at $900 billion in aid, is good, though it’s no CARES Act. It’s smaller and shorter, operating on a scale of weeks, not months. Until spring, those with jobless benefits will get an extra $300 per week; the long-term unemployed will get extra weeks of benefits; and eligibility for benefits will remain broadened. Several other key programs will be extended for weeks as well. Yet even with these extensions, because of Congress’ long holdup in passing the package it could take several weeks to reinstate lapsed benefits, which will leave many beneficiaries still struggling with January rent and bills.

The infuriating delay was caused in part by a late attempt from Republican senators to handicap the powers of the Federal Reserve — the one part of the federal government that has consistently done its job in this crisis.

In the end, the Fed dodged a bullet and will be able to maintain its powers, and the American people will get more money — including direct payments for individuals about half the size of the CARES Act.

But will the package do enough? It’s too early to say. But as someone who spent many years at the Federal Reserve as a macroeconomic forecaster, I have my worries. The trillion dollar cap that the Senate imposed was a made up number that could hurt us come spring. Congress, in essence, is taking another risky bet, despite their poor betting record.

The CARES Act was crafted with an implicit assumption that we could be back to normal in July. We were not. Congress’ dithering until a few weeks ago was based on the assumption of several key senators that the economy might heal itself and that the virus was relatively under control — wrong again.

This new package is built atop another dubious assumption: that enough people will be vaccinated by spring to restore normalcy. If public health officials and Big Pharma can’t pull that off in a distrustful, polarized country, the train wreck we narrowly avoided this month will be bearing down on us again soon.

One of my areas of deepest concern is the relief bill’s relatively weak support for struggling renters and homeowners. The eviction moratorium was extended one month, until the end of January. No one seriously thinks the economy will be back on track by February. And the $25 billion in rental assistance is a pittance. Still, it’s at least positive that the current administration extended forbearance on federally funded mortgages for low and moderate income borrowers through the end of February.

We know from the Census Bureau that in late November close to one in five renters were not current on their payments and that one in 10 of families behind on their mortgage. Likewise, analysts at Moody’s estimate almost 12 million renters will owe an average of $5,850 in back rent and utilities next month.

When the rent and mortgage payments come due and the new economic relief has run out this spring — with the one-time checks used and this short term extension of federal jobless benefits expiring — yet another painful chain reaction could be put in motion.

Because the housing market is so tied up with the world of finance, we could see strain reach from Main Street to Wall Street. If banks start getting squeezed by rising default rates and missed rent spills over into missed mortgage payments by landlords, the Fed and other regulators that keep an eye on the safety and soundness of banks might need to step in.

The Fed is already sounding alarms about this potential crisis. The Fed’s latest Beige Book, which reports economic conditions from the 12 Reserve bank districts before each policy meeting, called special attention to the risk. In total, seven out of the 12 banks — New York, Philadelphia, Cleveland, Atlanta, Chicago, Minneapolis, San Francisco — included the looming end of mortgage forbearance and eviction moratoriums in their entries.

As the Federal Reserve bank of Minneapolis explained, “While federal and state eviction moratoriums were keeping people housed, rent collections at lower-priced units in Minnesota were reportedly falling faster than at higher-priced units. Rising nonpayments were also squeezing smaller landlords, who have fewer options for mortgage forbearance than larger landlords.”

National leaders are at risk of being lulled into complacency by the brighter set of numbers on the upper end of the residential real estate market, which is seeing robust growth and driving countrywide increases in median sale prices.

By failing to tackle the emerging housing crisis more aggressively, Washington is risking financial distress among renters, homeowners, small business owners in real estate, as well as investors in mortgage markets and banks (big and small.)

It’s a gamble that could pay off, but it’s irresponsible for Congress to bet a house on it.

Claudia Sahm, an economist at the Federal Reserve from 2008 to 2019, is the architect of the Sahm Rule, a recession indicator.

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