president Donald Trumps Tuesday’s decision to end negotiations on additional Covid-19 incentives left many on Wall Street and Washington at a loss.
Why, they wondered, would the White House take such an abrupt step away from an economic boom in the home of its re-election campaign?
Observers viewed the president’s tweet as a self-inflicted wound. A senior Wall Street banker described Trump’s move to torpedo talks as “illogical,” especially just weeks to election day.
“Why would you admit that and lose?” said the banker, who refused to be named. “It’s not that Donald Trump is s — about the deficit and he wouldn’t mind putting his name on the checks,” added that person.
Further impetus is supported by 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 after a recession earlier this year, the US economy remains fragile by many standards. Some lawmakers pushed for talks to resume.
“It is a big mistake to wait until after the election to reach an agreement on the next Covid-19 aid package,” said GOP Senator Susan Collins, who faces a tough re-election campaign in Maine. “I have already made contact with the finance minister, one of the main negotiators, and 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 does not care about the plight of those struggling as a result of the coronavirus.
“He ended talks that would bring aid to our businesses and schools, families in difficulty and the unemployed – that would have saved hundreds of thousands of jobs,” Biden said in a statement.
Make no mistake: if you’re unemployed, if your business is closed, if your child’s school is closed, if you see layoffs in your community, Donald Trump decided today that none of this – none of this – matters to him “, he added.
The White House declined to comment.
The The turmoil began with a series of tweets at 2:48 p.m. ET when the president announced he had directed his negotiators to hold off talks with Democrats until after the election.
“I have instructed my representatives to suspend negotiations until after the election. Immediately after my victory, we will pass an important stimulus bill that focuses on hardworking Americans and small businesses,” Trump tweeted on Tuesday.
The president added in subsequent tweets that he had asked Senate Majority Leader Mitch McConnell to instead focus on efforts to approve his Supreme Court candidate, Judge Amy Coney Barrett.
The markets sold out quickly after the president’s announcement Dow Jones industry average Lose all winnings and end the session by 375 points. The S&P 500 also reversed course, falling 1.4% on the day.
Millions of Americans remain unemployed or on leave as a direct result of the virus. The pace of employment growth is slowing. A growing number of brokers and economists are lowering their forecasts for fourth quarter economic activity.
The Labor Department’s latest job report, released on Friday, showed the US added 661,000 jobs last month, less than the expected 800,000. The unemployment rate fell to 7.9%, the highest level since 2013, with no worse values from earlier times in the Covid-19 crisis.
House spokeswoman Nancy Pelosi, who led the Democrats in negotiations with the White House, spoke to Treasury Secretary Steven Mnuchin later Tuesday afternoon and confirmed the president had withdrawn from the talks.
The chamber passed a $ 2.2 trillion stimulus plan last week that included the additional $ 600 per week unemployment benefit through January, sending another direct payment of $ 1,200 to most Americans , Raised $ 436 billion to states and communities and approved a second round paycheck protection program loan.
Some were confused as to why the market didn’t sell any more, as so many strategists and investors position their stock portfolios as if another stimulus deal was inevitable.
Dennis DeBusschere, a stock strategist at Evercore ISI, said in an email that the sale may have been curbed since the president’s tweet increased the likelihood of a democratic battle with the White House and Congress.
Under that election result, top Democrats would likely enforce an even bigger incentive anyway, he wrote.
“Market returns now depend on who is sweeping, how much incentive we get and what it looks like under a Republican or Democratic Congress / President,” wrote DeBusschere. “At the moment, the sweep scenario clearly favors the Democrats. Therefore, a settlement stimulus trade shouldn’t go too far.”
“That being said, the Senate’s odds of winning are a coin toss (57% according to Predictit) so trading will be extremely volatile in the short term,” he added.
Additional economic stimulus remains one of the few bipartisan issues, even if the two parties cannot agree on how much or how further aid measures should be allocated.
Fed chairman Jerome Powell, a Trump appointee and one of the country’s top business figures, said this just hours before the president’s tweets The US economic outlook could deteriorate again if Congress couldn’t reach an agreement to release more relief.
Failure to reach an agreement could “lead to a weak recovery and create unnecessary trouble for households and businesses” and prevent a recovery that has so far been faster than expected.
“In contrast, the risks of exaggeration seem to be lower for the time being,” Powell added in remarks to the National Association for Business Economics. “Even if policies ultimately prove bigger than necessary, they won’t be in vain. The recovery will be stronger and faster if monetary and fiscal policy continue to work side-by-side to support the economy until it is clear.” out of the woods.”
The missed economic opportunity might also have cost the president a much-needed political victory.
Coronavirus relief remains a critical issue for many voters, according to the latest poll by CNBC / Change Research.
About 66% of respondents said they were more likely to agree that “the economy is in trouble and we need more financial relief from Washington” than 34% who agreed that “the economy is recovering and we are doing this “I don’t need any more financial relief from Washington. “
Charles Myers, founder of the financial advisory firm Signum Global and former vice chairman of Evercore, was puzzled by the president’s decision. Myers told CNBC that the way the president canceled talks was staggering, despite believing there is still a chance for a deal.
“He knew the market was going to sell, so it’s a bit of a surprise that he would fold and walk away,” he said on Tuesday.