President that of Donald Trump Tuesday’s decision to end negotiations on a further Covid-19 relaunch left many on Wall Street and Washington perplexed.
Why, they wondered, would the White House pull away so abruptly from an economic boost in the home stretch of its re-election campaign?
Observers saw the president’s tweet as a self-inflicted injury. A Wall Street banker called Trump’s decision to launch torpedo talks illogical, especially just weeks before election day.
“Why would you take this and lose?” Said the banker, who declined to be named. “It’s not like Donald Trump doesn’t give a damn about the deficit, and he wouldn’t be against putting his name on the checks,” the person added.
More Stimulus has the backing of 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 have pointed out that the US economy, by many indicators, remains fragile after a recession earlier this year. Some lawmakers have been pushing for talks to resume.
“Waiting until after the election to reach agreement on the next Covid-19 relief plan is a huge mistake,” said GOP Senator Susan Collins, who faces a bitter re-election battle in Maine. “I have already been in contact with the Secretary of the Treasury, one of the main negotiators, and with several of my colleagues in the Senate.
Trump’s Democratic challenger in the 2020 election, former Vice President Joe Biden, said the decision to suspend talks shows the president does not care about the fate of those struggling over the coronavirus.
“He ended talks that would get help for our businesses and schools, for struggling families and for the unemployed – that would have saved 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 closed, if you are seeing layoffs in your community, Donald Trump has decided today that none of the above. that – none of that – matters to him, “he added.
The White House declined to comment.
The the uproar started with a series of tweets at 2:48 p.m. ET, when the president announced that he had ordered his negotiators to drop talks with the Democrats until after the election.
“I have asked my representatives to stop negotiating until after the election when, immediately after my victory, we pass a major stimulus bill focused on hard-working Americans and small businesses,” Trump tweeted Tuesday.
The President added in subsequent tweets that he had asked Senate Majority Leader Mitch McConnell to focus instead on efforts to endorse his Supreme Court nominee, Justice Amy Coney Barrett.
The markets quickly sold out at the President’s announcement, with the Dow Jones Industrial Average losing all his gains and ending the session down 375 points. The S&P 500 also reversed course and fell 1.4% on the day.
Millions of Americans remain unemployed or on leave because of the virus. The pace of job gains is slowing. A growing number of brokerages and economists are reducing their projections for economic activity in the fourth quarter.
The Labor Department’s most recent employment report, released Friday, showed the United States added 661,000 jobs last month, less than the 800,000 expected. The unemployment rate dipped slightly to 7.9%, its highest level since 2013 excluding the worst readings from the start of the Covid-19 crisis.
House Speaker Nancy Pelosi, who had led Democrats in negotiations with the White House, met with Treasury Secretary Steven Mnuchin later Tuesday afternoon and confirmed that the president had stepped down from talks.
The chamber passed a $ 2.2 trillion stimulus bill last week that would have included the $ 600 a week in extra unemployment benefits through January, sent another direct payment of $ 1,200 to most Americans, disbursed $ 436 billion in aid to states and municipalities, and authorized a second round of Paycheck Protection Program Loans.
Some did not understand why the market had not sold even more since so many strategists and investors are positioning their equity portfolios as if another stimulus deal is inevitable.
Dennis DeBusschere, equity strategist at Evercore ISI, said in an email the sale may have been contained since the president’s tweet increased the chances of a Democratic sweep of the White House and Congress.
By virtue of this election result, it is likely that the best Democrats would force an even bigger stimulus anyway, he wrote.
“Market returns will now depend on who is sweeping, how much stimulus we receive and what that looks like under a Republican or Democratic Congress / President,” DeBusschere wrote. “For now, the sweeping scenario clearly favors Democrats. That is why a trade outcome should not be taken too far.”
“That being said, the Senate sweep odds are a draw (57% according to Predictit), so trading will be extremely volatile in the short term,” he added.
Further economic stimulus remains one of the few bipartisan issues, even if the two sides cannot agree on how much or how to allocate the additional aid.
Fed Chairman Jerome Powell, appointed by Trump and one of the country’s top economic officials, said hours before the president’s tweets that the US economic outlook could deteriorate again if Congress couldn’t come to an agreement to release more relief.
Failure to reach a deal could “lead to a weak recovery, creating unnecessary hardship for households and businesses” and thwart a rebound that has so far progressed faster than expected.
“In contrast, the risks of doing too much seem, for now, to be lower,” Powell added in remarks to the National Association for Business Economics. “Even if policy actions ultimately prove to be more important than necessary, they will not be wasted. The recovery will be stronger and faster if monetary policy and fiscal policy continue to work side by side to support the economy until the end of the day. that she clearly came out of the woods. “
Trump sowed more confusion later on Thursday, when he tweeted that he agreed with Powell’s assessment that there would be a low risk of “overstating” the stimulus.
The lost economic opportunity could also have cost the president a much needed political victory.
Coronavirus relief remains a critical issue for many voters, according to the latest CNBC / Change Research poll.
Some 66% of survey respondents said they tended to agree with the statement that “the economy is in trouble and we need more financial relief from Washington” against the 34% who tend to agree with the idea that “the economy is recovering and we need more financial help from Washington.”
Charles Myers, founder of financial advisory firm Signum Global and former vice president of Evercore, was intrigued by the president’s decision. Myers told CNBC that while he thought there was still a chance to strike a deal, the way the president called off the talks was astonishing.
“He knew the market was going to sell out, so it’s a bit of a surprise that he would fold and go,” he said on Tuesday.