President Donald Trump’s decision on Tuesday to end negotiations over additional Covid-19 stimulus left many on Wall Street and in Washington baffled.
Why, they wondered, would the White House would make such an abrupt move away from an economic boost in the home stretch of his reelection campaign?
Observers saw the president’s tweet as a self-inflicted wound. One senior Wall Street banker called Trump’s move to torpedo talks “illogical,” especially just weeks until Election Day.
“Why would you concede to this and lose?” said the banker, who declined to be named. “It’s not like Donald Trump gives a s— about the deficit, and he wouldn’t be against putting his name on the checks,” this person added.
More stimulus has support from a litany of unusual bedfellows: The Federal Reserve, Wall Street, Democrats in both houses of Congress, some Republicans and the American public.
Economists and investors pointed out that the U.S. economy, by many metrics, remains fragile following a recession earlier this year. Some lawmakers pushed for talks to resume.
“Waiting until after the election to reach an agreement on the next Covid-19 relief package is a huge mistake,” said GOP Sen. Susan Collins, who faces a tough reelection battle in Maine. “I have already been in touch with the Secretary of the Treasury, one of the chief negotiators, and with several of my Senate colleagues.”
Trump’s Democratic challenger in the 2020 election, former Vice President Joe Biden, said the decision to suspend talks shows the president’s doesn’t care about the plight of those struggling as a result of the coronavirus.
“He ended talks that would get help for our businesses and schools, for families struggling and for those unemployed — that would have preserved hundreds of thousands of jobs,” Biden said in a statement.
“Make no mistake: if you are out of work, if your business is closed, if your child’s school is shut down, if you are seeing layoffs in your community, Donald Trump decided today that none of that — none of it — matters to him,” he added.
The White House declined to comment.
The uproar began with a series of tweets at 2:48 p.m. ET, when the president announced that he’d directed his negotiators to abandon talks with Democrats until after the election.
“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 hardworking Americans and Small Business,” Trump tweeted on Tuesday.
The president added in subsequent tweets that he asked Senate Majority Leader Mitch McConnell to instead focus on efforts to approve his nominee to the Supreme Court, Judge Amy Coney Barrett.
Markets quickly sold off on the president’s announcement, with the Dow Jones Industrial Average losing all its gains and ending the session down 375 points. The S&P 500 also reversed course and dropped 1.4% on the day.
Millions of Americans remain unemployed or furloughed as a direct result of the virus. The pace of job gains is slowing. A growing number of brokerages and economists are cutting their projections for fourth-quarter economic activity.
The Labor Department’s most recent jobs report, released on Friday, showed the U.S. added 661,000 positions last month, fewer than the 800,000 expected. The unemployment rate inched lower to 7.9%, its highest level since 2013 excluding worse readings from earlier in the Covid-19 crisis.
House Speaker Nancy Pelosi, who had been leading Democrats in negotiations with the White House, spoke with Treasury Secretary Steven Mnuchin later Tuesday afternoon and confirmed that the president had walked away from the talks.
The chamber passed a $2.2 trillion stimulus bill last week that would have included the $600 per week in extra jobless benefits through January, send another $1,200 direct payment to most Americans, direct $436 billion in aid to states and municipalities, and authorize a second round of Paycheck Protection Program loans.
Some were confused as to why the market didn’t sell off even more since so many strategists and investors are positioning their equity portfolios as if another stimulus deal is inevitable.
Dennis DeBusschere, an equity strategist at Evercore ISI, said in an email that selling may have been contained since the president’s tweet increased the odds of a Democratic sweep of the White House and Congress.
Under that election outcome, it’s likely top Democrats would force an even larger stimulus anyway, he wrote.
“Market returns will now come down to who sweeps, how much stimulus we get and what it looks like under either a Republican or Democratic Congress/President,” DeBusschere wrote. “For now, the sweep scenario clearly favors the Democrats. That is why an unwind stimulus trades should not be taken too far.”
“That being said, Senate sweep odds are a coin flip (57% according to Predictit), so trading will be extremely volatile near term,” he added.
Additional economic stimulus remains one of just a few bipartisan issues even if the two parties can’t agree on how much, or how to allocate, further relief aid.
Fed Chairman Jerome Powell, a Trump appointee and one of the nation’s top economic officials, said just hours before the president’s tweets that the U.S. economic outlook could deteriorate again if Congress couldn’t reach a deal to release more relief.
Failing to reach a deal could “lead to a weak recovery, creating unnecessary hardship for households and businesses” and thwart a rebound that thus far has progressed more quickly than expected.
“By contrast, the risks of overdoing it seem, for now, to be smaller,” Powell added in remarks to the National Association for Business Economics. “Even if policy actions ultimately prove to be greater than needed, they will not go to waste. 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.”
Trump sowed more confusion later Thursday, when he tweeted that he had agreed with Powell’s assessment that there would be low risk to “overdoing” stimulus.
The lost economic opportunity might have cost the president a much-needed political win, as well.
According to the latest CNBC/Change Research poll, coronavirus relief remains a critical issue for many voters.
Some 66% of survey respondents said that they tended to agree with the statement that “the economy is struggling and we need more financial relief from Washington” versus the 34% who tended to agree with the view that “the economy is recovering and we do not need any more financial relief from Washington.”
Charles Myers, the founder of financial advisory firm Signum Global and former vice chair at Evercore, was puzzled by the president’s decision. Myers told CNBC that while he thinks there’s still a chance for a deal, the way the president went about cancelling talks was stunning.
“He knew the market would sell off, so it’s a little surprising that he would fold and walk away,” he said on Tuesday.
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