Election uncertainty leaves US economic rescue hanging in the balance

As of Wednesday evening, with the presidential race still up in the air, Democrats looked likely to retain control of the House although with fewer seats. But it's still unclear which party will control the Senate. Democrats still may flip it, but if so only by a very narrow margin.

So here is how a stimulus package may take shape depending on how the presidential and Senate races play out.

If Biden wins and Republicans keep control of the Senate

Thanks to a divided Congress, and with Republicans unwilling to spend as much as Democrats, this scenario would likely result in the smallest of economic rescue packages and it probably wouldn't pass until February.

"The Senate GOP will dig their heels in but have to deal, because of a thinner margin [of Republican votes]. But the economy will be struggling so it will be hard not to do anything," said Mark Zandi, chief economist of Moody's Analytics.

Zandi expects there might be a $1 trillion to $1.5 trillion package that could include money for supplemental unemployment benefits, stimulus checks, rental assistance, airlines, healthcare and schools, as well as more money for Paycheck Protection Program loans for small businesses. But, he said, he doesn't expect there to be much aid for state and local governments.

Then again, if the economy is perceived to be in better shape than it is now, there may be less pressure to do a deal.

Lakshman Achuthan, co-founder of the Economic Cycle Research Institute, who considers leading indicators to assess where the economy is headed, said no matter who wins, the economy is unlikely to fall into a recession in the next two quarters. But, he noted, because the recovery so far has been much stronger for higher-income households and the manufacturing and construction sectors, lower-income households and the service sector will still be in pain.

"Those lower-income households are probably going to suffer. But it doesn't mean the recovery falls apart," Achuthan noted.

If Trump wins and Republicans retain control of the Senate

If President Trump is re-elected to a second term, "there's a reasonable probability he'll cut a deal with Democrats and get Senate Republicans to go along," Zandi predicts.

After all, Trump, has often expressed willingness to spend more than his own party and might be amenable to a $2 trillion package, he said.

Depending on how the job market is performing, that package might include money for supplemental unemployment benefits, another round of stimulus checks, more funds for small businesses and help for airlines, and healthcare and education.

As for timing, assuming the presidential contest isn't locked in litigation for weeks, there's a chance a package could come together by December 11, which is when Congress must pass a new continuing resolution to keep the government funded. Otherwise, there will be a government shutdown, which benefits no one.

But there may be other political considerations that hinder the passage of a stimulus package next month, said Pete Davis, a former Capitol Hill economist who now advises Wall Street money managers on Washington policy developments.

Chief among them is that during the lame duck session -- which runs from now until the next Congress is seated in January -- lawmakers who lost their seats may demand a number of pricey concessions in exchange for their stimulus votes. And if the Republican majority doesn't want to make those concessions, passage might be postponed until the end of January or early February.

"That's why you want to avoid the lame duck if you have the majority in January," Davis said.

If Biden wins and Democrats flip the Senate

This scenario could result in a package of up to $2.5 trillion, Zandi predicts, or even $3 trillion, Davis suggested.

It is also the most likely one to include funding to help state and local governments, whose coffers have been hammered by the pandemic, he said.

Such a package wouldn't come together until after Biden takes office, so by late January or sometime in February. But to get there quickly -- given what would be Democrats' razor thin margin in the Senate -- might require that they eliminate the filibuster, which would be a controversial procedural overhaul, Davis noted.

If Trump wins and Democrats flip the Senate

If Trump wins and Democrats take control in the Senate, they could end up creating one of the largest rescue packages -- perhaps closer to $3 trillion -- Zandi estimates.

"I think Trump's pretty disposed to going big. And there would be no brakes put on by Senate Republicans," Zandi said.

But the timing on that would have to be after the inauguration, after Senate Democrats take over.