US stimulus needs to reach the intended soon
A multi-trillion-dollar stimulus package would have pumped up the economy at a time when the unemployment and business growth outlook is trending downward Image Credit: Shutterstock

US President Donald Trump on Tuesday called an abrupt end to negotiations with Democrats over additional COVID-19 relief, delaying action until after the US presidential elections.

The decision has come as a total surprise to Trump allies, political foes, policymakers and financial markets, despite the recent ominous warnings from the Federal Reserve.

The president’s call to end talks on a second federal stimulus package comes barely hours after the Federal Reserve chair, Jerome Powell, reiterated the Fed had done most of what it could, and that more needed to come from the fiscal side.

A multi-trillion-dollar stimulus package would have pumped up the economy at a time when the unemployment and business growth outlook is trending downward. The stimulus talks between Democratic Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin that began in July had been dragging on. While the Republicans were stuck with $1.6 trillion package, the Democratic side demanded a more generous $2.2 trillion support.

Trump’s allies appear more stunned by the fact that he has saddled himself with the blame for any more layoffs and market losses in the final weeks before the election. With the president already trailing badly in polls, unless he backtracks, Trump’s decision ensures that Americans won’t receive stimulus checks before Election Day

- Gulf News

The president’s decision to halt talks comes at the highly politically charged environment with the prospects for enacting another comprehensive package before the election looking dim.

Equity investors who had already priced in a trillion plus stimulus package are seeing a prolonged impact on the markets. Stocks dropped suddenly on Wall Street after Trump ordered a stop to negotiations. European and Asian shares rose on Wednesday, after a brief fall following the initial dismay at Trump’s decision to cancel fiscal stimulus negotiations.

Recent editorials

Despite the big surprise element Trump has thrown in, hopes of a stimulus package have not vanished for good. Going by the president’s record of walking away from the negotiating table abruptly and returning later to talk down the other side into more concessions, there is a likelihood of Trump coming up with his own version of a stimulus package in the coming days.

Trump’s allies appear more stunned by the fact that he has saddled himself with the blame for any more layoffs and market losses in the final weeks before the election. With the president already trailing badly in polls, unless he backtracks, Trump’s decision ensures that Americans won’t receive stimulus checks before Election Day.

The likelihood of both parties retuning to the negotiating table looks more probable in the context of the high economic price the US will economy will pay, while the political cost of abandoning stimulus efforts in the last week leading up to the election could prove dearer to the president and the Republicans.