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Powell Warns of Prolonged Economic Pain Without Help as Trump Calls Off Stimulus Talks Trump Abruptly Ends Stimulus Talks After Fed Chair Urges Economic Support
(about 4 hours later)
WASHINGTON — Jerome H. Powell, the Federal Reserve chair, delivered a blunt message to Congress and the White House on Tuesday: Faced with a once-in-a-century pandemic that has inflicted economic pain on millions of households, go big. WASHINGTON — Hours after the Federal Reserve chair, Jerome H. Powell, warned that the economy could see “tragic” results without robust government support, President Trump abruptly cut off stimulus talks, sending the stock market sliding and delivering a final blow to any chance of getting additional pandemic aid to struggling Americans before the election.
Hours later, President Trump delivered his own message: Forget it. Mr. Trump, in his first full day back at the White House after being hospitalized with Covid-19, said in a series of conflicting messages on Twitter that the economy was “doing very well” and “coming back in record numbers,” suggesting that no additional help was needed. But he also tweeted that “immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business.”
In a series of conflicting tweets, the president said the economy was “doing very well” and coming back “in record numbers,” suggesting that no additional help was needed while also saying that he would wait until after the election to “pass a major Stimulus Bill that focuses on hardworking Americans and Small Business.” The prospects for enacting another trillion-dollar package before the election had already been dim. But Mr. Trump’s directive carried heavy stakes both for himself and for members of his party, making clear that it was the president himself who was unwilling to continue seeking an agreement. Some Republicans rushed to condemn the move, as they prepared to face voters in less than a month.
While the chances of Congress reaching a deal on another package were already slim, Mr. Trump’s directive sent markets swooning as the reality sank in that the economic recovery, which is slowing, would not get another jolt before Nov. 3. The S&P 500 fell more than 1 percent soon after Mr. Trump’s tweet, after having been higher in the moments before. Markets fell as the reality sank in that the economic recovery, which is slowing, would not get another jolt anytime soon. The S&P 500, which had begun to climb before Mr. Trump’s announcement, slid more than 1 percent soon afterward, and ended the day 1.4 percent lower.
In deciding to forego any more immediate relief, Mr. Trump could be setting the economy up for the type of painful and “tragic” outcome that Mr. Powell warned about on Tuesday. The Fed chair, who has increasingly called for more government help, said policymakers should err on the side of injecting too much money into the economy rather than too little. The president’s political calculation in calling off talks while negotiations were underway — and while financial markets were open — remained unclear, though Mr. Trump said he wanted the Senate to focus on Judge Amy Coney Barrett’s confirmation to the Supreme Court.
His tweets came less than an hour before his Treasury secretary, Steven Mnuchin, and Speaker Nancy Pelosi were to resume talks on the phone aimed at hammering out a compromise. Instead, when they did speak, Mr. Mnuchin confirmed that Mr. Trump had withdrawn from the negotiations, and Ms. Pelosi, according to a spokesman, “expressed her disappointment.”
In a letter to her caucus on Tuesday, Ms. Pelosi called Mr. Trump’s decision to pull the plug on the talks “an act of desperation.”
“Today, once again, President Trump showed his true colors: putting himself first at the expense of the country, with the full complicity of the G.O.P. members of Congress,” Ms. Pelosi wrote.
Republican leaders said the president’s move was merely a bow to reality. Senator Mitch McConnell, Republican of Kentucky and the majority leader, told reporters on Capitol Hill that Mr. Trump’s view of the talks “was that they were not going to produce a result, and we need to concentrate on what’s achievable.”
In deciding to forgo any more immediate relief, the president could be setting the economy up for the type of painful outcome that Mr. Powell warned of on Tuesday. The Fed chair, who has increasingly called for more government help, said policymakers should err on the side of injecting too much money into the economy rather than too little given how much work remains.
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Mr. Powell said in remarks before the National Association for Business Economics.“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Mr. Powell said in remarks before the National Association for Business Economics.
“Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy and holding back wage growth,” he said. “By contrast, the risks of overdoing it seem, for now, to be smaller.”“Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy and holding back wage growth,” he said. “By contrast, the risks of overdoing it seem, for now, to be smaller.”
Nearly seven months into the pandemic, millions of Americans remain unemployed as the coronavirus keeps many service industries operating below capacity. The unemployment rate has fallen more rapidly than many economists expected, dropping to 7.9 percent in September, and consumer spending is holding up. But Mr. Powell again highlighted that the economy’s resilience owed substantially to strong government assistance that has been provided to households and businesses. Nearly seven months into the pandemic, millions of Americans remain unemployed as the coronavirus keeps many service industries operating below capacity. The unemployment rate has fallen more rapidly than many economists expected, dropping to 7.9 percent in September, and consumer spending is holding up. But the economy’s resilience owes substantially to strong government assistance that has been provided to households and businesses.
That included direct payments to families, forgivable loans to small businesses and an extra $600 per week in unemployment benefits, which Mr. Powell said had “muted the normal recessionary dynamics that occur in a downturn,” like a hit to spending that causes additional layoffs. That included direct payments to families, forgivable loans to small businesses and an extra $600 per week in unemployment benefits, which Mr. Powell said had “muted the normal recessionary dynamics that occur in a downturn,” like lower consumer spending that leads to additional layoffs.
But that assistance has since run dry, putting what Mr. Powell called an “incomplete recovery” at risk without the government pumping more money into the economy. But that assistance has since run dry, putting what Mr. Powell called an “incomplete recovery” at risk at a time when he said additional help was likely to be needed. “There is still a long way to go,” he said regarding the labor market, adding that “many will undergo extended periods of unemployment.”
“There is still a long way to go,” he said regarding jobs, adding that “there is likely to be a need for further support” given “many will undergo extended periods of unemployment.” Economists said Mr. Trump’s decision could set back the recovery by ensuring that millions of unemployed Americans and thousands of struggling small businesses are forced to go months without additional help from the federal government. That could produce a spiral in which weak demand hurts businesses and leads to bankruptcies and foreclosures, prompting more layoffs.
The comments were a clear signal that the Fed remained worried about the economy’s ability to continue its rebound without more government spending to prop up struggling households and businesses. One big risk, Mr. Powell noted, was that prolonged economic weakness could perpetuate job losses that have weighed most heavily on women, people of color and low-wage workers. “You are pulling the rug out from underneath this economy at a point where we’re still in the infant stages of this recovery,” said Ryan Sweet, a senior director of economic research at Moody’s Analytics.
Mr. Powell’s comments were a clear signal that the Fed remained worried about the economy’s ability to continue its rebound without more government spending. One big risk, he noted, was that prolonged economic weakness could perpetuate job losses that have weighed most heavily on women, people of color and low-wage workers.
“A long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy,” he said. “That would be tragic, especially in light of our country’s progress on these issues in the years leading up to the pandemic.”“A long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy,” he said. “That would be tragic, especially in light of our country’s progress on these issues in the years leading up to the pandemic.”
Ernie Tedeschi, a policy economist at Evercore ISI, said that while Mr. Powell had made similar statements in the past, “this was more urgent.”Ernie Tedeschi, a policy economist at Evercore ISI, said that while Mr. Powell had made similar statements in the past, “this was more urgent.”
“I get the sense that he is getting worried that if we don’t have another fiscal package, that the recovery we’ve had may be in jeopardy,” Mr. Tedeschi said.“I get the sense that he is getting worried that if we don’t have another fiscal package, that the recovery we’ve had may be in jeopardy,” Mr. Tedeschi said.
Mr. Powell has become an important influence for members of Congress during the pandemic recession, pushing for continued economic support and emphasizing that concerns about whether the government is taking on too much debt can wait until the crisis has passed. Speaker Nancy Pelosi of California and Representative Richard E. Neal of Massachusetts, are among the Democrats who have cited his advice when discussing their efforts to pass more stimulus. Negotiators had resumed talks in recent days, but they were still far from an agreement, reflecting months of political incentives that pushed all sides away from a deal. Ms. Pelosi and Mr. Mnuchin again engaged in hourlong phone calls and were exchanging documents and paperwork in an effort to reach an agreement. But a number of critical issues remained, including how much aid to provide to state and local governments, extra unemployment benefits and the overall size of the package.
Yet despite Mr. Powell’s increasingly frequent calls for sustained government help, lawmakers had been unable to reach agreement on additional aid for out-of-work families, struggling local governments and hard-hit businesses, including airlines. House Democrats passed a $2.2 trillion stimulus plan last week, but the White House and Republicans have rejected that price tag as too big. The failure to reach a deal had already infuriated rank-and-file lawmakers, who were largely excluded from talks and faced with the prospect of going home to campaign without the promise of relief. Mr. Trump’s decision to withdraw from negotiations prompted immediate, bipartisan backlash.
“Waiting until after the election to reach an agreement on the next Covid-19 relief package is a huge mistake,” Senator Susan Collins of Maine, who is facing her toughest re-election bid, said in a statement.
“I disagree with the President,” Representative John Katko, a moderate Republican from New York, said on Twitter. “With lives at stake, we cannot afford to stop negotiations on a relief package.”
Representative Elissa Slotkin of Michigan, a moderate Democrat who joined a bipartisan group of lawmakers in pushing for an agreement, said in a statement that “I cannot understand why the president would halt negotiations until after the election except in a cynical move to secure votes.”
“Doing so does not serve the needs of the Michigan families and our small businesses,” she added. “It places himself above the needs of the country, and it’s out of step with the mission of government, which is to help in moments of crisis.”
Republicans had argued that Ms. Pelosi, who pushed a $3.4 trillion package through the House in May and then muscled through a $2.2 trillion package last week, had pushed for unrelated “poison pills” that she knew Republicans could not support. But it was never clear that Republicans would have supported any deal. In recent days, as Mr. Mnuchin proposed a $1.6 trillion plan, lawmakers and aides in the Senate warned that a majority of Republicans would not support such a large price tag.
Top Trump administration officials have played down the need for another big fiscal package by pointing to the falling unemployment rate as a sign that the economy is experiencing a rapid rebound. And many Republican lawmakers have begun publicly fretting about the ballooning federal deficit, which is expected to top $3 trillion this year.Top Trump administration officials have played down the need for another big fiscal package by pointing to the falling unemployment rate as a sign that the economy is experiencing a rapid rebound. And many Republican lawmakers have begun publicly fretting about the ballooning federal deficit, which is expected to top $3 trillion this year.
The Fed chair did not weigh in on what sort of package was appropriate. But Mr. Powell, who has a long track record of worrying about the federal debt, has tried to persuade lawmakers that “this is not the time to give priority to those concerns.” The Fed chair did not weigh in on what type or amount of aid was appropriate. But Mr. Powell, who has a long track record of worrying about the federal debt, has tried to convince lawmakers that “this is not the time to give priority to those concerns.”
Instead, he has reiterated time and again the importance of returning the economy to full strength, and that both the Fed and Congress need to continue to provide help.Instead, he has reiterated time and again the importance of returning the economy to full strength, and that both the Fed and Congress need to continue to provide help.
“This will be the work of all of government,” Mr. Powell said. “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.”“This will be the work of all of government,” Mr. Powell said. “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.”
In his tweets, Mr. Trump said he wanted the Senate to instead focus on getting his Supreme Court nominee, Judge Amy Coney Barrett, confirmed.
But Mr. Powell, along with many of his Fed colleagues, has also made clear that monetary and fiscal policy can only do so much to buttress the economy and that the recovery will be determined in large part by the path of the virus.
Mr. Powell, whose institution is set up to operate independently of the White House, was unambiguous in recommending a solution, one that contrasts with the message and example that has at times been held out by the Trump administration.
“We should continue do what we can to manage downside risks to the outlook,” Mr. Powell said, adding that doing so required “following medical experts’ guidance, including using masks and social-distancing measures.”
One of his colleagues was more blunt — and more worried.
“Because of the United States’s inability to control the virus, we’ve experienced approximately 21 percent of the world’s deaths, despite housing only about 4 percent of the world’s population,” Patrick T. Harker, the president of the Federal Reserve Bank of Philadelphia, said in a separate speech on Tuesday.
The virus is still circulating even as cases come down in some places, Mr. Harker said, and “in recent days, we’ve even seen alarming spikes in other areas, like New York City, that we had hoped had permanently suppressed their infection rates.”
The Fed itself has gone to great lengths to support the economy, cutting interest rates to near-zero in March, rolling out a large bond-buying program and setting up emergency lending efforts, many of them backed by Treasury Department funding.The Fed itself has gone to great lengths to support the economy, cutting interest rates to near-zero in March, rolling out a large bond-buying program and setting up emergency lending efforts, many of them backed by Treasury Department funding.
While the Fed invoked its emergency powers in the 2008 recession, it has gone even further this time, buying municipal debt and corporate bonds to shore up key markets.While the Fed invoked its emergency powers in the 2008 recession, it has gone even further this time, buying municipal debt and corporate bonds to shore up key markets.
Mr. Powell said he did not regret rolling out those programs, which had never been tried before and have faced criticism from lawmakers and watchdog groups. But Mr. Powell, along with many of his Fed colleagues, have made clear that monetary and fiscal policy can do only so much to buttress the economy and that the recovery will be determined in large part by the path of the virus.
Some argue that the state and local government program isn’t generous enough. Others insist that the corporate program should come with more strings — like employee retention requirements. Such restrictions would have been difficult or impossible to carry out in the Fed’s current corporate bond program. Mr. Powell, whose institution is set up to operate independently of the White House, was unambiguous in recommending a solution, one that contrasts with the message and example that have at times been held out by the Trump administration.
“I don’t know how I would have been able to explain to the public that we didn’t go to the limit of what we can do,” Mr. Powell said during a question-and-answer session after his remarks. “History will judge how well we did.” “We should continue do what we can to manage downside risks to the outlook,” Mr. Powell said, adding that doing so required “following medical experts’ guidance, including using masks and social-distancing measures.”
Nicholas Fandos and Luke Broadwater contributed reporting.