How the U.S. economic response to the coronavirus pandemic stacks up to the rest of the world

“History will likely judge the fiscal policy response to Covid more in terms of outcomes regarding small and medium-size businesses, along with the jobs and lives impacted along the way,” said Gregory Faranello, head of U.S. rates trading at AmeriVet Securities.

The world reached a grim milestone as 1 million people have died from the coronavirus since the pandemic started, with more than 200,000 of those deaths coming from the U.S. alone. 

But while the U.S. health response to the coronavirus pandemic has faced criticism, the economic response has been among the best in the world.

In the throes of the pandemic, the Federal Reserve and U.S. lawmakers moved swiftly to implement unprecedented stimulus aimed at supporting the largest economy in the world during a global halt to economic activity.

These measures not only stabilized the U.S. economic downturn, they also sparked a massive stock-market rally that left the rest of the world in the dust and helped the economy rebound. However, those gains and economic inroads could be in danger if lawmakers can’t move forward with a new fiscal stimulus package.

“This was a very strong response,” said Quincy Krosby, chief market strategist at Prudential Financial. “When you look at the cooperation between the Fed, the Trump administration and Democrats in Congress, it’s not just a headline. It’s an entire book unto itself.”

CNBC spoke with economists and market experts to break down the monetary and fiscal measures taken in the U.S. and how they compare with those seen in other countries. 

Monetary response: ‘The Fed did more because they could’

The Fed slashed rates to a range of zero to 0.25% on March 15and launched an open-ended bond-buying program entailing the purchase of Treasurys and mortgage-backed securities. The U.S. central bank followed that up with a slew of measures to ensure credit markets ran smoothly. 

The Fed also launched a Main Street lending program aimed at supporting small and midsize businesses. In May and June, the Fed increased its stimulative efforts when it started buying corporate-bond exchange-traded funds as well as debt from individual companies. 

These efforts led the Fed’s total assets to balloon by more than 68% since March to more than $7 trillion. 

The Bank of Japan and European Central Bank, two key central banks, also took on massive stimulus campaigns to help out their economies. The ECB, for example, is running a crisis bond-buying program worth more than 1.3 trillion euros. The BOJ, meanwhile, has pledged to buy an unlimited amount of bonds to keep borrowing rates low. China’s central bank, the People’s Bank of China, has cut its one-year loan prime rate to 3.85% from 4.15% in 2019. 

Assets for the BOJ and ECB have grown to nearly 690 trillion yen and 6.5 trillion euros, respectively. However, those totals represent an asset expansion of just 17.8% for the Japanese central bank and 38.7% for the ECB since March, according to FactSet. The PBOC’s balance sheet has remained little changed over that time period. 

“In a lot of ways, the Fed did more because they could,” said Peter Perkins, global market strategist at MRB Partners. “They also got more done in nonconventional ways than other major central banks.”

Perkins pointed out that rates in the U.S. were much higher relative to other developed economies, particularly Europe and Japan. This allowed the Fed to provide greater economic stimulus by cutting rates and increasing its balance sheet at a much faster pace compared with other major central banks. 

The strategist added that, in a way, the Fed had to do more in terms of monetary policy than other central banks. 

“When the Fed does something, it has global ramifications that tend to be self-reinforcing,” he said. “It’s not that the Fed has the responsibility of ensuring that financial conditions in Europe and Asia are stable, but it understands that if the rest of the world is falling apart, it will reverberate onto the U.S. economy and into U.S. financial markets.”

Fiscal response: ‘More generous’ than other countries

U.S. lawmakers also responded to the economic shock caused by the pandemic with massive stimulus. 

On March 27, President Donald Trump signed the CARES Act, a $2.2 trillion stimulus package that included direct payments to Americans and expanded unemployment benefits for those affected by the pandemic. 

Under the bill, American adults earning less than $99,000 per year received a one-time payment of $1,200. Workers who lost their jobs due to the outbreak were eligible to receive an additional $600 per week until late July. 

The legislation also included the creation of the Paycheck Protection Program loan, which was designed as an incentive for small businesses to keep employees on their payroll. According to the Small Business Administration, PPP loans will be forgiven if “employee retention criteria are met.” 

“History will likely judge the fiscal policy response to Covid more in terms of outcomes regarding small and medium-size businesses, along with the jobs and lives impacted along the way,” said Gregory Faranello, head of U.S. rates trading at AmeriVet Securities. 

The government also pushed through other pieces of legislation aimed at aiding hard-hit industries such as airlines and cruise operators. 

In total, the U.S. fiscal response to the coronavirus pandemic amounts to roughly 13% of the country’s GDP, or about $2.5 trillion, according to Ned Davis Research. 

However, “if you just compare the announced COVID-19 fiscal stimulus as a share of GDP, the U.S. is significantly lower” relative to other developed economies, said Alejandra Grindal, senior international economist at Ned Davis Research.

Grindal pointed out that total fiscal stimulus in Japan totals roughly 42% of the country’s GDP. In Germany and France, government measures amount to 33% and 21% of GDP, respectively. 

“A lot of these countries have much stronger automatic stabilizers, which kick in automatically whenever economic activity slows down,” Grindal said. “The U.S. doesn’t have quite the same stabilizers.”

Perkins of MRB Partners, however, noted that some of the measures pushed through by U.S. lawmakers have been “much more generous” than some of the safety nets already in place overseas, including the $1,200 checks and $600-per-week unemployment supplement.

But regardless of how the fiscal response compares with the rest of the world, these efforts helped start a rip-roaring rally in U.S. equities that left other markets in the dust. 

Monetary and fiscal combo jolts U.S. stocks, economy

The S&P 500 is up around 50% since hitting an intraday low of 2,191.86 on March 23. The broader-market index also reached an intraday all-time high of 3,588.11 before pulling back from that level. 

Meanwhile, the iShares MSCI ACWI ex-U.S. (ACWX) — which tracks stocks from around the world except the U.S. — is up 39% over that time period. The European Stoxx 600 index has popped more than 27% since March 23 but is still lagging the U.S. benchmark. China’s Shanghai Composite and Japan’s Nikkei 225 are up 21% and 40%, respectively, in that time period. 

“This has been a liquidity-driven rally as the Fed moved faster than any other central bank — and faster than we’ve seen in history — into every corner of the market,” said Prudential’s Krosby, noting these measures helped companies raise capital and lift market sentiment. “This, coupled with the fiscal response, led to the March 23 bottom.”

Krosby added that U.S. equities have been able to outperform overseas markets in part because investors have “flocked into a host of tech names that were providing digital services during the lockdowns,” such as Amazon, as well as other cloud software providers.

“These names are crucial for the stay-at-home, remote world, but they’re names that make money and have strong balance sheets,” Krosby said. 

U.S. economic activity has recovered sharply after these monetary and fiscal measures were taken. 

The ISM nonmanufacturing purchasing managers index surged back into expansion territory above 50 in June after two straight months of contraction. The manufacturing PMI was in contraction territory below 50 for three straight months before recovering in June. 

Initial weekly jobless claims have fallen back below 1 million after reaching more than 6 million at one point in March. Existing home sales, meanwhile, jumped to a 14-year high in August, while new home sales are also at their highest level since 2006.

This early, but sharp, recovery has raised expectations for third-quarter U.S. GDP. Earlier this month, economists at Goldman Sachs raised their GDP growth forecast to a Wall Street high of 35% from 30%.

“Following the sharp rise in spending in late spring and early summer, the virus resurgence and the surprise fiscal tightening threatened a reversal. But spending instead rose strongly in July, and four high-frequency measures indicate a further 1-2% increase in real spending in August,” the economists wrote.

To be sure, the lack of further fiscal stimulus could threaten this market and economic recovery. 

‘Wile E. Coyote moment’

Democrats and Republicans have been at a stalemate for weeks over a new U.S. coronavirus relief bill.

House Democrats are preparing a new stimulus package that would cost about $2.4 trillion. This bill would include enhanced unemployment aid as well as a new round of direct payments to U.S. individuals.

Speaker Nancy Pelosi, D-Calif., said on Sunday that she was confident a deal between the two parties was still possible. However, that price tag is higher than what Senate Republicans have indicated they would support. 

Concern over a new stimulus bill being passed has partially dented U.S. market sentiment this month. The S&P 500 is down more than 5% in September and is headed for its first monthly loss since March, when it dropped 12.5%.

“It certainly feels like a Wile E. Coyote moment, where he runs off a cliff, pauses midair, only to realize there’s nothing below,” said Peter Berezin, chief global strategist at BCA Research. “I think investors are underappreciating just how much fiscal policy has tightened over the last six weeks.”

“Households had a lot of savings heading into September because they got so much money from the government, so spending hasn’t really weakened that much,” he said. “But unless we get a fiscal deal done soon, you’re going to see household spending weaken quite considerably in the fourth quarter and heading into next year. That’s a risk to markets.”

Despite the uncertainty over a new aid package, the initial U.S. economic response was able to prevent further damage to the economy at the height of the pandemic, said MRB’s Perkins. It also “ensured the market recognized that more can be done if it were needed.”