Trump Pauses US Stimulus Negotiations Until After Election

Stimulus negotiations are on hold. That is the news out of Washington today (Oct 6) as President Trump has announced that negotiations between Republicans and Democrats will be officially paused until after the election on Nov. 3.

“I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business,” Trump tweeted on Tuesday.

According to CNBC reports, the decision came as Trump instructed  Senate Majority Leader Mitch McConnell to “focus full time” on confirming Supreme Court nominee Amy Coney Barrett.  House Speaker Nancy Pelosi, who was trying (and notably failing) to get to a deal with Treasury Secretary Steve Mnuchin as recently as a few days ago, strongly expressed her disappointment at the negotiations temporary suspension.

The abrupt suspension of negotiations may have caught Pelosi off guard.  She made the Sunday talk show rounds  telling reporters that “progress was being made.” As of the end of last week, despite coming to no definitive deal with Treasury Secretary Mnuchin, she released a public statement aimed at the airline industry, urging executives not to go through with the mass layoffs scheduled in the absence of a second stimulus package passing.

“Don’t fire people. You know that relief is on the way,” she noted.

On the way perhaps — soon enough to head off layoffs? Probably not.

And outside the beltway where almost anything can be counted on to generate conflict, the announcement today also clearly wasn’t the news investors were looking to hear an hour before the market closed down for the day — the Dow dropped 600 points on the news and closed down 1.34 percent for its second negative day in three; the S&P 500 closed down 1.4 percent, also its second negative day in three.

The news that stimulus negotiations would be delayed for the next month came a few hours after Federal Reserve Chair Jerome Powell offered an official public warning that more federal spending is necessary at this time to keep the economy afloat.

In a speech to members of the National Association for Business Economics, Powell said the biggest danger right now for the federal government is doing too little, not too much.

In particular, the debt incurred from another round of stimulus spending would be money well spent if it were to prevent the economy from sliding into a pattern of anemic growth after an initial burst of activity last spring.

“A prolonged slowing in the pace of improvement over time could trigger typical recessionary dynamics, as weakness feeds on weakness,” Powell said. “A long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy. That would be tragic, especially in light of our country’s progress on these issues in the years leading up to the pandemic.”

Moreover, recent data out from the National Bureau of Economic Research (NBER) indicates that in the absence of stimulus dollars, which did a lot to blunt the pandemic’s incredible impact, consumers feeling the pandemic’s full force could put the brakes on spending, and that could be enough to push consumer spending right over a cliff come Q4.

Specifically, the study found that as government benefits were reduced — the loss of the $600 a month unemployment expansion — led to a sharp 44 percent decline in local consumer spending. The less the reduction, the less the effect is felt.

“We find that higher [income] replacement rates [through enhanced unemployment insurance] lead to significantly more consumer spending – even with increases in the unemployment rate — consistent with the goal of the fiscal stimulus,” the study noted.

In fact, that data is supported by  PYMNTS’ consumer survey data that shows in pre-pandemic days, the majority (60 percent) of consumers were already living paycheck to paycheck.  The pandemic layoffs and fear of job loss created a massive wave of belt-tightening and spending cuts as consumers jumped to adapt to a post-pandemic, but pre-government stimulus, world.

These same spending patterns eased up a bit as consumers entered the spring and summer with unemployment benefits and stimulus checks in hand, but those funds at this point have largely been exhausted.

That might well mean that consumers, still hit hard by the pandemic and now with no extra infusion of cash coming for at least another month, could very likely return to their March spending habits and start seriously cutting down their spending.

Exactly what merchants don’t want to see happening at the start of what is typically the most spending heavy time of year.

With today’s announcement, one mystery is solved. Small- and medium-sized businesses (SMBs) and consumers should not count on a stimulus cushion any time soon. But with one mystery solved, many new ones have opened up and an unusual holiday spending season is now looking a bit more uncertain than ever.