Trump shuts off talks for relief deal
Abrupt move leaves stocks stumbling, dims hope for economic jolt
WASHINGTON — Hours after the Federal Reserve chair, Jerome Powell, warned that the economy could see “tragic” results without robust government support, President Donald Trump abruptly cut off stimulus talks, sending the stockmarket sliding and delivering a final blow to any chance of getting additional pandemic aid to struggling Americans before the election.
Trump, in his first full day back at the White House after being hospitalized with COVID-19, said in a series of conflicting messages on Twitter that the economy was “doing very well” and “coming back in record numbers,” suggesting that no additional help was needed. But he also tweeted that “immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business.”
The prospects for enacting another trillion-dollar package before the election had already been dim. But Trump’s directive carried heavy stakes both for himself and for members of his party, making clear that it was the president himself who was unwilling to continue seeking an agreement. Some Republicans rushed to condemn the move, as they prepared to face voters in less than a month.
Markets fell as the reality sank in that the economic recovery, which is slowing, would not get another jolt anytime soon. The S&P 500, which had begun to climb
before Trump’s announcement, slid more than 1 percent soon afterward, and ended the day 1.4 percent lower.
The president’s political calculation in calling off talks while negotiations were underway — and while financial markets were open — remained unclear, though Trump said hewanted the Senate to focus on Judge Amy Coney Barrett’s confirmation to the Supreme Court.
His tweets came less than an hour before Treasury Secretary Steven Mnuchin and Speaker Nancy Pelosi were to resume talks on the phone aimed at hammering out a compromise. Instead, when they did speak, Mnuchin confirmed that Trump had with drawn fromthe negotiations, and Pelosi, according to a spokesman, “expressed her disappointment.”
In a letter to her caucus Tuesday, Pelosi called Trump’s decision to pull the plug on the talks “an act of desperation.”
“Today, once again, President Trump showed his true colors: putting himself first at the expense of the country, with the full complicity of the G.O.P. members of Congress,” Pelosi wrote.
Republican leaders said the president’s move was merely a bow to reality. Sen. Mitch McConnell, R-Ky., the majority leader, told reporters on Capitol Hill that Trump’s view of the talks “was that they were not going to produce a result, and we need to concentrate on what’s achievable.”
In deciding to forgo any more immediate relief, the president could be setting the economy up for the type of painful outcome that Powell warned of Tuesday. The Fed chair, who has increasingly called for more government help, said policymakers should err on the side of injecting too much money into the economy rather than too little given how much work remains.
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Powell said in remarks before the National Association for Business Economics.
“Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy and holding back wage growth,” he said. “By contrast, the risks of overdoing it seem, for now, to be smaller.”
Nearly sevenmonths into the pandemic, millions of Americans remain unemployed as the coronavirus keeps many service industries operating below capacity. The unemployment rate has fallen more rapidly than many economists expected, dropping to 7.9 percent in September, and consumer spending is holding up. But the economy’s resilience owes substantially to strong government assistance that has been provided to households and businesses.
That included direct payments to families, forgivable loans to small businesses and an extra $600 perweek in unemployment benefits, which Powell said had “muted the normal recessionary dynamics that occur in a downturn,” like lower consumer spending that leads to additional layoffs.
But that assistance has since run dry, putting what Powell called an “incomplete recovery” at risk at a time when he said additional help was likely to be needed. “There is still a long way to go,” he said regarding the labor market, adding that “many will undergo extended periods of unemployment.”
Economists said Trump’s decision could set back the recovery by ensuring that millions of unemployed Americans and thousands of struggling small businesses are forced to go months without additional help from the federal government. That could produce a spiral in which weak demand hurts businesses and leads to bankruptcies and foreclosures, prompting more layoffs.
“You are pulling the rug out from underneath this economy at a point where we’re still in the infant stages of this recovery,” said Ryan Sweet, a senior director of economic research at Moody’s Analytics.
Negotiators had resumed talks in recent days, but they were still far from an agreement, reflecting months of political incentives that pushed all sides away froma deal. Pelosi and Mnuchin again engaged in hourlong phone calls and were exchanging documents and paperwork in an effort to reach an agreement. But a number of critical issues remained, including how much aid to provide to state and local governments, extra unemployment benefits and the overall size of the package.
The failure to reach adeal had already infuriated rankand-file lawmakers, who were largely excluded from talks and faced with the prospect of going home to campaign without the promise of relief. Trump’s decision to withdraw from negotiations prompted immediate, bipartisan backlash.
“Waiting until after the election to reach an agreement on the next COVID-19 relief package is a huge mistake,” Sen. Susan Collins of Maine, who is facing her toughest reelection bid, said in a statement.
Top Trump administration officials have played down the need for another big fiscal package by pointing to the falling unemployment rate as a sign that the economy is experiencing a rapid rebound. And many Republican lawmakers have begun publicly fretting about the ballooning federal deficit, which is expected to top $3 trillion this year.