Trump rolls the dice on recovery as stimulus talks break down

The stimulus talks stalled on the size of the package. The gap between Trump’s “very generous offer” of a $1.6 trillion package and the Democrats’ $2.4 trillion proposal was too large for the president to stomach. 

The Democrats’ version contained a new stimulus cheque, an extension of higher benefits for unemployed workers, business relief and aid for state and local governments – a key sticking point in the talks.

Any deal needs the approval of the Democrat-controlled House of Representatives and the Republican-held Senate with the new Congress not sitting until January.

But Trump sided with the Republicans in the Senate who are resisting any deal costing more than $2 trillion. In the latest barb in her ongoing spat with the president, House Speaker Nancy Pelosi said he was “putting himself first at the expense of the country”.

With polls putting Joe Biden’s national lead close to double digits, Trump’s tactics are risky, analysts say.

James McCann, senior global economist at Aberdeen Standard Investments, says Trump has “raised the stakes for the election” by deepening the impasse.

“The irony of Trump calling off talks with the Democrats is that a blockbuster stimulus package is the one thing that could have shifted the narrative.”

Inaction could hurt Trump’s election hopes, but also prove just as costly for the US economy.

Just hours before Trump ended talks, Federal Reserve chair Jerome Powell delivered a stark warning on failing to reach a deal, saying businesses and the economy’s recovery were on the line. 

“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” he said.

“Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth.”

He added that policymakers needed to keep their foot on the gas until the economy “is clearly out of the woods”, arguing the “risks of overdoing it seem, for now, to be smaller”.

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