The unprecedented amount of fiscal and monetary stimulus is possibly the most important factor in the strength and recovery of financial markets. Some of the biggest programs are the Federal Reserve's asset purchases of Treasuries, mortgage-backed securities, and corporate bonds. The Fed also has a Main Street lending program to lend to small and medium-sized businesses.
On the fiscal policy side, Congress set up its PPP program which incentivized companies to keep workers on its payroll. It also set up a supplement to unemployment insurance which gave every unemployed worker $600 per week. There was also a $1,200 stimulus check to all households.
The success of these programs is evident in metrics like consumer spending, household incomes, and the stock market
Of course, there is the argument that debt and deficits will come back to haunt the country, but the primary mechanism that imposes discipline is higher inflation and interest rates. So far, there are no consequences. Additionally, the cost of not doing anything is the negative vortex of higher unemployment, business bankruptcies, lower spending, and more defaults.
Next Steps
The damage to the economy is not over. This is clear from elevated unemployment, and some industries may be going to be meaningfully affected until the coronavirus threat passes like restaurants and travel. Another issue is that state and local governments have seen their revenues plunge especially with sales tax revenue dropping.
They also don't have the federal government's ability to borrow unlimited amounts of money, so they may be forced to cut costs and lay off workers which would damage the recovery. This happened from 2008-2010 as property tax revenues plunged, forcing cuts in local and state government budgets and leading to a slower recovery.
The supplemental unemployment insurance will also be expiring at the end of July. It's an open question of whether it will be renewed or not. Many Republicans are against renewing this with the argument that it would incentivize people to not seek employment. Republicans in the Senate are looking to pass the "Skills Renewal Act" which would be a tax credit to cover retraining costs.
The White House is preparing a $1 trillion infrastructure package. Democrats are more focused on extending support to state and local governments. During the crisis, compromises were made between the two parties and their different interests. However, now that the worst parts of the crisis are over, negotiations are going to get more intense. Most expect some sort of agreement will be reached, because the White House is not averse to spending more money especially in an election year, and Republicans in the Senate have followed their lead till this point.
