The Fed abandons the idea low unemployment stokes inflation

Hopes for a US economic deal fade after a strong employment report

Hopes from Congress and the White House to reach an agreement on more economic stimulus have faded as an unexpectedly sharp drop in the unemployment rate has stifled Republicans and the White House's appetite for compromise in fighting new coronaviruses.

The haggling over the federal government's new support to the U.S. economy will resume when lawmakers return to Washington after its summer break this week as the impact of $ 3 billion in aid approved at the start of the pandemic wears off .

Economists and analysts expected an agreement to be reached by the end of the month to pour about $ 1.5 billion in new government money into the economy, which could be vital to sustaining the US recovery. However, the prospects for a deal have diminished.

Stock market strength in August and Friday data that showed unemployment fell to 8.4 percent below its peak during the Great Recession have put pressure on Republicans on Capitol Hill and Trump administration officials to A strike, somewhat diminished deal.

“In the Cares Act, we reached an agreement because there was a crisis mentality on both sides when the market collapsed and the economy closed. The crisis mentality is simply not there on the Republican side right now, ”said Ben Koltun, senior research analyst at Beacon Policy Advisors in Washington.

After the unemployment data was released on Friday, Larry Kudlow, senior economic adviser to President Donald Trump, told Bloomberg TV that the US could "absolutely live with" without resorting to new incentives. "At the moment, I believe the economy is on a self-sustaining recovery path and will continue in this direction and continue to surprise positively," he said.

Democrats say the U.S. economy needs an additional $ 3 billion in fiscal stimulus to protect households and businesses from the effects of mass unemployment and loss of income, and warn that failure could be devastating. They have also indicated that the US is experiencing a "K-shaped" recovery, with wealthier Americans quickly returning to pre-pandemic activities, while low-income families face starvation, unemployment and housing insecurity.

Even Federal Reserve officials have called for an agreement to be reached on fresh impetus, saying it would be important support as the effects of the Covid-19 recession continue.

"It really is a country for us, a very wealthy country, to use our great powers to support people who have done nothing wrong," said Jay Powell, chairman of the Fed, in an interview with NPR that aired Monday.

But the Democrats may have missed the window when the Republicans felt the maximum pressure to reach an agreement in July as infections rebounded and fears of a "double slump" in economic activity surfaced in many sunbelt states. At the time, the Republicans were proposing $ 1 billion in new spending, but the Democrats rejected the offer as inadequate, holding it at more than $ 2 billion.

When Congress returns this week, Senate Republicans are expected to propose new $ 500 billion stimulus bills that are even further from the democratic position and likely to be quickly dismissed.

The cooperative spirit we had in March and April has faded as we got closer to the elections

Republicans and Democrats are separately discussing an agreement to extend federal government funding through September that would prevent the federal shutdown but remove another catalyst for action.

"The cooperative spirit that we had in March and April has faded as we got closer to the elections," Senate majority leader Mitch McConnell told reporters last week.

Republican Senator Ted Cruz told a virtual Texas Business Panel, "I'm skeptical of anything going to be passed between now and November."

Some Democrats are calling for compromise. "I think there is a realization that we need to get something done, and if we don't, it will hurt both sides," Josh Gottheimer, a Democratic congressman from New Jersey and a member of the non-partisan Problem Solvers Caucus, told the Financial Mal . "I think a lot of people are really frustrated that both sides aren't talking. You have to go back to the table."

While White House Chief of Staff Mark Meadows and Treasury Secretary Steven Mnuchin have expressed optimism that a deal can still be passed, Mr Trump has shown less interest in reaching an agreement.

Instead of stimulating the negotiations, Mr Trump has launched a series of executive measures to make up for the lack of financial support. However, his unilateral moves so far had only a very limited economic impact.

The president remained militant on Friday, saying the Democrats "took additional hostage hostage to the Chinese virus for reasons no one can understand." He made a proposal to turn $ 300 billion in unused funds into the economy under the Cares Act, under the Cares Act, in unused funds, which he probably couldn't do without the approval of Congress.

“His campaign path focus right now is on other things. It doesn't seem like [a stimulus deal] among Republicans and Trump is seen as an important political calculation for their electoral success, ”said Koltun.

Mr Meadows has indicated that the biggest sticking point for both sides is how much money needs to be given to state and local governments. Democrats have asked for nearly $ 915 billion while Republicans say they are ready to give up as much as $ 300 billion.

The stalemate has abandoned dozens of cities and towns as many face budget constraints.

Dean Trantalis, the Democratic mayor of Fort Lauderdale, Florida, said cities were becoming increasingly frustrated with the lack of consensus. It may be time that both sides deal with some of the key components in separate bills to make sure something comes about.

"They basically gave us a lifeline and then cut us off before things could stabilize," he said. "The calculation is very complex and I think we need to take it gradually – try to agree parts of it."

He added, "We can't hold everything back just because we can't get everything we want."