Trump gambles with new stimulus strategy

President Trump is taking a huge political and economic risk by walking away from negotiations with Democrats on a coronavirus relief package just four weeks before the election.

Trump on Tuesday abruptly put a halt to talks between Treasury Secretary Steven Mnuchin and Speaker Nancy Pelosi (D-Calif.) until after Election Day, accusing the Democratic leader of not negotiating in “good faith” despite some signs of progress between top negotiators in recent weeks.

The president later relented somewhat, urging Congress to send him smaller stand-alone bills based on areas of broad agreement instead of a sweeping measure sought by Pelosi and Mnuchin.

Trump’s approach has frustrated Republicans and business groups and thrust the prospect of future assistance into further uncertainty. Additionally, many economists have warned of the negative impact of not sending out more aid.

“The economy as a whole is not making a lot of progress,” said Claudia Sahm, a former senior economist and research director at the Federal Reserve.

“There are real human costs — today and years from now — of not sending money out and turning it into a political battle,” Sahm added.

Even with discussions stalled on a broader package, Mnuchin and Pelosi spoke on Wednesday morning about stand-alone airline assistance, according to Pelosi spokesman Drew Hammill, who said the Speaker noted that House Republicans last week blocked an airline aid bill offered by Rep. Peter DeFazio (D-Ore.).

“The Speaker reminded him that Republicans blocked that bill on Friday & asked him to review the DeFazio bill so that they could have an informed conversation,” Hammill tweeted. 

White House officials said Wednesday that they came to the realization this week that the two sides were too far apart to reach an agreement on a substantial package. Negotiations began in July.

“It became very obvious over the last couple of days that a comprehensive bill was just going to get to a point where it didn’t have really much Republican support at all and it was more of a Democratic-led bill, which would have been problematic, moreso in the Senate than in the House,” White House chief of staff Mark Meadows told reporters on Wednesday morning.

White House economic adviser Larry Kudlow reiterated his position that the economic recovery doesn’t depend on “a massive assistance package” but said officials believe that agreements on specific, targeted relief to the airline industry, small businesses and schools would be helpful.

“We think we have been very flexible. And the view of the president and the view of Senate [Majority] Leader Mitch McConnell [R-Ky.] is that we do not think the Democrats have been not only not flexible, but indeed they don’t really want to play ball,” Kudlow told CNBC on Wednesday. “Sen. McConnell said yesterday that he doesn’t think Speaker Pelosi will produce a result and they’re just stringing us along.”

Some of Trump’s advisers, including conservative economist Stephen Moore, have argued against a large spending bill and raised concerns over the growing deficit, arguing that the job growth since May points to a strong recovery.

“I think the economy is doing just fine without a massive stimulus,” Moore said in an interview.

But a broad range of prominent economists, including Federal Reserve Board Chairman Jerome Powell, have warned in increasingly dire terms that failing to approve more aid could derail the U.S. economy in its attempt to recover from the worst recession since the Great Depression.

In a Tuesday speech, Powell — a Republican debt hawk — warned that the U.S. could slip into a “tragic” cycle of layoffs and economic decline without more help for millions of unemployed Americans, struggling businesses and state and local governments.

“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,” Powell said.

Powell and other top economists argue it will be impossible for the economy to fully recover from the pandemic until the coronavirus is under control. Until then, millions of Americans and businesses in the hard-hit leisure, hospitality, entertainment and travel industries will suffer.

“There’s a mistaken thought that we’re somehow out of the woods or into a period when we have enough momentum for the recovery to be self-fulfilling, but I really don’t think that’s the case,” said Adam Ozimek, chief economist at labor and services recruiting firm Upwork.

“Now we need to just focus on helping the small businesses survive for the long run without trying to tie their hands too much,” he added.

Trump is trailing Democratic nominee Joe Biden in national and swing-state polls less than a month before the election. The president has put the economy at the center of his reelection campaign, arguing that his response to the coronavirus and the ensuing recession has been a success and that Biden would implement draconian shutdowns and tax increases that would prevent a recovery.

Even several months into the coronavirus recession, polls have consistently shown Trump is strongest against Biden on the issue of the economy; however, some national surveys have indicated that gap has narrowed recently.

A CNN poll released on Tuesday found Trump and Biden statistically tied when respondents were asked who they trust more to handle the economy.

The slowing recovery is likely to make it harder for Trump to sell his economic credentials at a time when an increasing number of Americans face financial peril.

Job gains have declined for four consecutive months and permanent layoffs rose in August and September, according to the Labor Department.

In figures released Wednesday, the Census Bureau found that nearly a quarter of Americans expect that they or someone in their household will lose their job or take a pay cut before Election Day; nearly one-third expect to face foreclosure or eviction within the next two months; and more than 10 percent are facing food shortages.

“Where we are today is not acceptable. This is not normal,” Sahm said. “They can get us back to something that looks like normal but they’re going to have to work at it, and it’s going to take trillions and trillions of dollars.”

But Moore, the outside Trump adviser, argued that the president would divide Republicans and damage himself politically by agreeing to the $2.2 trillion figure put forth by Pelosi and the Democrats.

“Agreeing to the Pelosi deal would be politically harmful for Trump. Getting a good deal would be politically beneficial for Trump. And no deal falls somewhere in the middle,” Moore said.