Options for Economic Stimulus Being Discussed After Market Plunge

As for the administration's response, Mills noted interviews on Friday in which administration officials "signaled support for 'targeted and timely' fiscal stimulus, but downplayed any support for larger-scale efforts."

Mills believes there will be a "COVID-19 stimulus package, but health, economic, and market conditions will have to deteriorate before D.C. will act."

In the meantime, Mills thinks, "it is of outmost importance for the Federal Reserve to lead in an effort to ensure confidence and liquidity in financial markets." The Fed's recent 50 basis point cut "could easily be followed with additional cut(s) at the upcoming March 19-20 [FOMC] meeting, and potentially the creation of liquidity vehicles to prevent any disruptions in credit markets."

Josh Bivens, director of  research at the Economic Policy Institute in Washington, states in a recent blog that "short-run" ways Congress can blunt the potential economic pain of COVID-19 would be to enact temporary payroll tax cuts (both to workers and to employers) and mandate temporary paid sick leave. 

"Payroll tax cuts could provide demand stimulus generally but also give firms affected by the temporary cutback in spending some breathing room to pay bills during the demand slowdown," Bivens explained. "The employer-side payroll tax cut would help firms finance the week of mandated paid sick leave. As always, any temporary cut to payroll taxes must be accompanied by provisions to hold harmless the trust funds (Social Security and Medicare, most importantly) that these taxes finance."

Local, state, and federal governments' responses in the U.S. "thus far lead us to believe the [coronavirus] case numbers will end up on the higher end of the range and the spread will occur sooner rather than later," Mills writes. "For us to be wrong, government officials need to take dramatic steps to limit the spread and these steps will come with a steep economic price tag."

(Related: Six Thoughts on Collapse of the Oil Market)