Trump Cuts Off Stimulus Talks

By Yuval Rosenberg

Trump Pulls the Plug on Stimulus Talks

President Trump said Tuesday that he instructed White House
negotiators to cut off talks on another coronavirus relief package
until after the November elections.

In a series of
tweets posted less than a day after he was released from
the hospital, Trump accused House Speaker Nancy Pelosi of "not
negotiating in good faith" and claimed that Democrats were seeking
to bail out "poorly run" blue states by providing funding unrelated
to the pandemic.

"I have instructed my representatives to stop negotiating until
after the election when, immediately after I win, we will pass a
major Stimulus Bill that focuses on hard-working Americans and
Small Business," Trump
wrote.

The two sides were not close to an agreement, but they had
resumed talks after weeks of inaction and appeared to be making
modest progress in narrowing their differences. House Democrats
passed a $2.2 trillion package last week, while Treasury Secretary
Steven Mnuchin had offered $1.6 trillion. But Trump and other
Republicans have long objected to providing significantly more aid
to states, and the issue remained one of several obstacles to a
deal. (Reminder: Red states
face a fiscal crunch, too, as a result of the
pandemic.)

Trump’s announcement Tuesday reportedly came after a conference
call with Mnuchin and Republican congressional leaders.
In his tweets, Trump said he had asked Senate Majority Leader Mitch
McConnell (R-KY) to focus on confirming Amy Coney Barrett, his
nominee to the Supreme Court.

Pelosi ripped Trump’s move. "Today, once again, President Trump
showed his true colors: putting himself first at the expense of the
country, with the full complicity of the GOP Members of Congress,"
Pelosi said in a statement. "Walking away from coronavirus talks
demonstrates that President Trump is unwilling to crush the virus.
… Clearly, the White House is in complete disarray."

What it means: More economic suffering is likely, at
least in the near term. Many analysts say that the economy still
requires additional support to stave off more prolonged weakness,
and before Trump made his announcement, Federal Reserve Chair
Jerome Powell again urged lawmakers to provide more aid. Powell
warned that the economic outlook remains uncertain and suggested
that it would be better to do too much than too little. (See more
on Powell’s comments below.)

Others lamented the likely economic toll. "As we speculate on
why Trump would kill a relief bill, think of the damage—foeclosures
[SIC], evictions, businesses cratering, states struggling to fund
anything, hospitals bracing for a new Covid wave without PPE,"
Norman Ornstein, resident scholar at the American Enterprise
Institute,
tweeted. "This more than an election ‘strategy.’ It is a
human tragedy."

A surprising turn by Trump: The president himself said
just a few days ago that the country needed a stimulus bill. "OUR
GREAT USA WANTS & NEEDS STIMULUS. WORK TOGETHER AND GET IT DONE,"
he
tweeted from the hospital on Saturday. On Tuesday,
though, he tweeted that the economy "is doing very well" and touted
the jobs rebound and the stock market’s gains (stocks
turned sharply lower on Trump’s tweet).

The Washington Post’s Erica Werner and Jeff Stein
called out some of the issues with Trump’s

rosier outlook:

"Even some of Trump’s top advisers have said the economy is
not doing very well and that more assistance is needed. Further,
the stock market is not at record levels, and it also doesn’t
reflect the broader health of the economy. The unemployment rate
has come down from its April peak of around 15 percent, but it is
still at 8.4 percent and millions of Americans are struggling to
pay their bills, afford food, and find jobs. The U.S. economy has
barely recovered half of the jobs lost in March and April, and
Trump is set to be the first president in modern history to end his
first term with a net loss of American jobs."

Axios
reports that even some of Trump’s advisers were
baffled by his decision to pull the plug on talks. One campaign
adviser told Axios: "You have to try to be this politically inept.
What is going on in the White House?"

One answer may lie with the contrarian conservative
outside economic advisers who have Trump’s ear, including Arthur
Laffer and Stephen Moore, both of whom argued that additional
stimulus would have been harmful. Moore
reportedly called Trump’s move "heroic," suggesting
that, while a stimulus bill would have yielded short-term benefits,
Trump was "looking at the future" and saying, "I'm not going to
bankrupt our country."

Powell Warns Economy Could Falter Without More Help

The recovery still has "a long way to go" and the economy
continues to need significant monetary and fiscal support, Federal
Reserve Chairman Jerome Powell said Tuesday, in what many saw as a
warning to lawmakers in Washington. The failure to provide such
support "would lead to a weak recovery, creating unnecessary
hardship for households and businesses," he warned.

Speaking to a meeting of the National Association for Business
Economics, Powell
said the main risk right now is doing too little
to sustain the recovery, and that policymakers shouldn’t worry
about overdoing it.

"Even if policy actions ultimately prove to be greater than
needed, they will not go to waste," Powell said. "The recovery will
be stronger and move faster if monetary policy and fiscal policy
continue to work side by side to provide support to the economy
until it is clearly out of the woods."

Applauds previous efforts: Powell hailed the "truly
extraordinary" fiscal response in the early days of the pandemic.
"The unanimous passage of the CARES Act and three other bills
passed with broad support in March and April established
wide-ranging programs that are expected to provide roughly $3
trillion in economic support overall—by far the largest and most
innovative fiscal response to an economic crisis since the Great
Depression," he said.

But warns of the risks ahead: Although the recovery has
moved faster than many experts predicted so far, Powell warned that
the outlook remains "highly uncertain" and that the pandemic’s
continued fallout could result in a longer-than-expected path to
full recovery, if not another recession. "[A] prolonged slowing in
the pace of improvement over time could trigger typical
recessionary dynamics, as weakness feeds on weakness," he said.
"Over time, household insolvencies and business bankruptcies would
rise, harming the productive capacity of the economy, and holding
back wage growth."

Powell noted that the suffering would not be evenly distributed.
"A long period of unnecessarily slow progress could continue to
exacerbate existing disparities in our economy," he said. "That
would be tragic, especially in light of our country's progress on
these issues in the years leading up to the pandemic."

Need to act now: "That is a lot of the urgency we’ve been
feeling — to do what we can as quickly as we can, so we can avoid
those problems," Powell said. "It’s now when we need to be working
on that problem."

Pelosi quickly endorses:  Pelosi cited the Fed
chief’s remarks as she continued to push for a new stimulus package
Tuesday morning, before the president announced that he would cut
off negotiations. "Chairman Powell’s warning could not be more
clear: robust action is immediately needed to avert economic
catastrophe from the devastation of the coronavirus pandemic,"
Pelosi said in a statement Tuesday. "It is long overdue for
Republicans to join us in passing a bill that meets the needs of
the American people by protecting our heroes, crushing the virus
and putting money in the pockets of workers."

The bottom line: Given the president’s decision, Powell’s
repeated calls for more stimulus appear certain to go unheeded this
year, and the size and scope of any additional relief package will
be determined to a large extent by the outcome of the
elections.

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