Democratic hopes of a "blue wave" that could sweep them back into power in Washington failed to materialize during Tuesday's election, likely pointing to a smaller coronavirus relief package under a divided Congress.
While Democrats appear poised to maintain a slim majority in the House, control of the Senate hinges on Georgia, where the state's close election has pushed at least one, and possibly two races, to a Jan. 5 runoff.
"With hopes of a blue wave dashed, fiscal stimulus is likely to underwhelm," Danielle DiMartino Booth, the CEO and chief strategist of Quill Intelligence, said.
If lawmakers wait until the new Congress is inaugurated to complete a stimulus package, it could mean a reduction in federal aid, according to Brian Gardner, chief Washington policy strategist at Stifel.
"A stimulus package is still possible, maybe probable, but it will likely be a smaller deal than in a blue wave scenario," Gardner wrote in a Wednesday research note. "We think it will be under $2 trillion, which could disappoint investors."
For months, Congress has struggled to reach an agreement on another round of emergency relief for families and businesses after passing the $2.2 trillion CARES Act in March, at the beginning of the pandemic.
Negotiations collapsed days before the Nov. 3 election, with House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin publicly at odds.
House Democrats had put forward a $2.2 trillion offer ‒ down from their initial proposal of $3.4 trillion ‒ while White House officials agreed to spend as much as $1.8 trillion.
Senate Republicans, meanwhile, lobbied for a smaller $500 billion relief package. But the two sides were unable to reconcile key policy differences on issues such as a virus testing plan, aid to state and local governments and tax cuts for low- and middle-income families.
It's unclear whether lawmakers will try to pass legislation targeted at the economic fallout from the pandemic during the lame-duck session, the period after the election but before newly elected officials are sworn in.
Senate Majority Leader Mitch McConnell ‒ who will be taking the lead on virus negotiations, according to a source familiar with the talks ‒ said Wednesday that Congress should pass a spending bill before the end of the year, a reversal from his stance prior to the election.
The source said the administration made its best and final offer, the $1.9 trillion deal, in the weeks before the election.
That likely means McConnell will put forward the "skinny" $500 billion deal that Democrats previously rejected. During a press conference Friday, the Kentucky Republican pointed to GDP growth in the third quarter and the October employment report as evidence the economy is recovering faster than expected from the virus-induced downturn.
"I think it reinforces the argument that I've been making that something smaller, rather than throwing another $3 trillion at this issue, is more appropriate," he said.
House Speaker Nancy Pelosi called on the administration to return to the negotiating table during a Capitol Hill press conference on Friday.
"We want the White House to come back to the table," she told reporters.
Asked about a smaller relief bill, Pelosi once again pushed back: "No," she said. "It doesn't appeal to me at all. They haven't agreed to crush the virus...That isn't anything we should be looking at."
Lifelines that propped up the economy in the early weeks of the pandemic — like the $670 billion Paycheck Protection Program, a one-time $1,200 stimulus check and sweetened unemployment benefits — lapsed months ago.
On top of that, millions of laid-off workers could lose their jobless benefits altogether by the end of the year, with the enhanced unemployment benefits that Congress approved in March set to expire on Dec. 31.
FOX Business' Edward Lawrence contributed to this report.