Via Financial Times

A Senate dispute over federal funding for unemployment insurance has threatened to stall the passage of a $2tn US economic relief package, prompting a late Wall Street sell-off as investors worried it could derail the hard-fought agreement.

Four Republican senators raised alarms that new unemployment benefits in the legislation could have “devastating consequences” on the economy because it provided a “strong incentive for employees to be laid off instead of going to work”.

The eleventh hour objections raised questions about whether the Senate would be able to pass the recovery package on Wednesday, as the White House had anticipated. Mitch McConnell, the Senate’s top Republican, announced a deal in the early hours on Wednesday, after marathon negotiations with Chuck Schumer, his Democratic counterpart, and Steven Mnuchin, the US Treasury secretary.

But by the time US markets closed on Wednesday, the full text of the agreement had not been published, though many drafts were circulating on Capitol Hill and party leaders had briefed lawmakers. No time had been set for a vote, despite Mr McConnell’s earlier assurances that the bill would be passed in the Senate before the end of the day.

“Our expectation is this bill passes tonight and gets to the House tomorrow and it passes,” Mr Mnuchin said at a White House news conference. “We need to get this money into the American economy and American workers.”

The objections from the four senators — Lindsey Graham, Ben Sasse, Tim Scott and Rick Scott — centred on provisions to expand unemployment insurance, which include an additional $600 per worker in federal support on top of what states provide each week.

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The senators said the provision would result in some workers earning more through unemployment benefits than they had in wages, and they called for a cap on unemployment so that no individual received more than 100 per cent of what they had earned in wages.

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Mr Mnuchin said he and President Donald Trump had spoken to the unhappy lawmakers, but that they disagreed with their position. He said the nationwide $600 increase was driven by a need to get money to recipients quickly; a more tailored approach would take longer since it would have to be delivered through individual states.

“I don’t think it will create [negative] incentives,” Mr Mnuchin said. “Most Americans what they want, they want to keep their jobs.”

Bernie Sanders, the independent senator from Vermont who is running for president as a Democrat, responded by saying he was “prepared to put a hold” on the legislation “to impose strong conditions on the $500bn corporate welfare fund” if the Republican senators did not drop their objections.

“In my view, it would be an outrage to prevent working-class Americans to receive the emergency unemployment assistance included in this legislation,” Mr Sanders said.

US shares lost some steam following Mr Sanders’ comments, which came just before US markets closed on Wednesday, with the benchmark S&P 500 index paring gains to 1.2 per cent. It had been trading more than 4 per cent higher before the senator’s intervention.

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Democrats had broadly argued in negotiations that Republicans’ proposals were too generous to big businesses, and had called for limits on share buybacks and executive compensation at bailed-out companies.

A key sticking point in bipartisan negotiations at the weekend had been oversight of a $500bn fund that would award loans to businesses, cities and states, including $25bn for commercial airlines. President Donald Trump had at one point suggested he would “be the oversight” for the fund, but Republicans and Democrats later agreed that an inspector general and five-person congressional panel would oversee the fund.

The stimulus package will need to pass the Republican-controlled Senate and the Democratic-held House of Representatives before Mr Trump can sign it into law.

While the Senate remains in session, most House members are not in Washington, raising questions about how soon a vote could be held in the lower chamber.

Leading House Democrats want to pass the bill through “unanimous consent”, which would not require lawmakers to fly back to Washington but could allow a single member of Congress to block it by objecting. House Republicans have argued for a “voice vote”, with lawmakers calling out “ayes” and “nays”.

Many House members, including Alexandria Ocasio-Cortez, the Democratic congresswoman from New York, have suggested that they could vote against the measure.

Earlier on Wednesday, Andrew Cuomo, the Democratic governor of New York, hit out at the stimulus proposals, saying the state would get a “drop in the bucket as to need” and that he had asked the state’s members of Congress to help secure more funding.

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Steny Hoyer, the Democratic House majority leader, said on Wednesday that House members would have 24 hours’ notice before any vote.

Additional reporting by Jennifer Ablan in New York