Hopes fade for US stimulus with Washington in stalemate

Hopes fade for US stimulus with Washington in stalemate

Senior White House officials and congressional Democrats have clashed over Donald Trump’s sudden withdrawal from talks on a new economic relief package, as hopes dwindled for even a limited fiscal stimulus deal to help the US recovery.

Political tensions over US economic policy have been simmering for months but rose sharply this week after the president on Tuesday angrily ditched negotiations on a new stimulus package that could have provided nearly $2tn in support to the world’s largest economy.

Mr Trump, who is ill with coronavirus and trailing in the polls against Joe Biden ahead of the November election, later said he was prepared to sign smaller aid legislation to send direct payments to individuals, but the prospects for even limited help were hanging by a thread.

In an interview on ABC’s The View on Wednesday, Nancy Pelosi, the Democratic speaker of the House who has been negotiating a possible deal with Steven Mnuchin, the US Treasury secretary, attacked Mr Trump for “walking away” from the talks.

She also dismissed his partial U-turn on more limited stimulus as a sign he was regretting a “terrible mistake” politically, which was possibly the result of his medical treatment.

“I think that the president has always had erratic behaviour. Right now it’s very, very dangerous because he knows the danger of the virus, but he’s in denial as he was right from the start,” Ms Pelosi said. “I could never explain to you any rational, linear path of action on the part of the president.”

Meanwhile, senior White House officials, including Mark Meadows, the chief of staff, and Larry Kudlow, the director of the National Economic Council, blasted Democrats for negotiating in bad faith and being insufficiently willing to compromise.

Mr Kudlow told CNBC that the president had abandoned negotiations because Ms Pelosi was “stringing” him along, and he was not optimistic about the prospects for even a limited agreement. “This would probably still be low-probability stuff. I don’t want to rule anything in, I don’t want to rule anything out,” he said.

Ms Pelosi spoke again to Mr Mnuchin on Wednesday about a standalone bill that would offer $25bn in aid to airlines to protect their workforces from mass lay-offs.

But in a sign of the friction surrounding the discussions, Drew Hammill, one of her senior aides, told Mr Mnuchin that House Republicans had opposed similar legislation recently and the secretary should review that bill so they could have a more “informed conversation”.

The continuing stalemate in Washington means negotiators are running out of time to strike a deal to deliver aid to households and businesses before the election. Every day that passes without stimulus hinders the US economy’s ability to claw its way back from the depths of the pandemic. Recent economic data has shown a slowdown in job growth and a substantial hit to income as well as weaker consumption.

“Trump’s decision to call off stimulus talks until after the elections could represent a watershed moment for the US economy as fiscal stimulus is expiring and employment is slowing. Without faster job growth — unlikely at this stage of the recovery — or increased fiscal aid, households, businesses and state and local governments will be increasingly susceptible to a deterioration of the health situation,” said Gregory Daco, chief economist at Oxford Economics.

Officials at the Federal Reserve have been particularly vocal in warning that the damage to the recovery would be significant in the absence of fiscal support.

Jay Powell, chair of the Federal Reserve, said on Tuesday that the economic 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”.

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The piecemeal approach to stimulus legislation had been floated by Republican lawmakers and the White House in recent months. But Democrats have dismissed such efforts as woefully insufficient.

In terms of a large package, Democrats have been pushing for $2.2tn in new spending, whereas the Trump administration had been willing to go up to $1.6tn, with many Republican lawmakers on Capitol Hill saying even that was excessive.

The biggest sticking point in the negotiations was the Democratic demand for aid to cash-strapped state and local governments, without which they will have to make aggressive budget cuts.