Opinion: No stimulus for you! Trump calls off the negotiations over more COVID relief

Federal Reserve Chair Jerome H. Powell testifies to the House Financial Services Committee in Washington on June 30.
(Drew Angerer/Associated Press)
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A few hours after Federal Reserve Chairman Jerome H. Powell all but begged Congress and the White House to pump more dollars into the U.S. economy, President Trump drove a stake through the stimulus bill that his administration was trying to negotiate with congressional Democrats.

Complaining that House Speaker Nancy Pelosi (D-San Francisco) wasn’t bargaining in good faith, Trump tweeted Tuesday afternoon, “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.”

No word from the president on what happens if he loses.

So as of Tuesday, at least, there will be no last-minute preelection boost to the economy, despite the red flags that Powell, arguably America’s most important banker, has been raising for weeks. As with his own bout with COVID-19, Trump evidently thinks the country is winning its battle with recession, no matter what Powell says.


The president is not alone — one reason Congress hasn’t taken any significant action since passing the $2-trillion Coronavirus Aid, Relief, and Economic Security Act in March is because numerous Senate Republicans have resisted. While Democrats largely accept Keynesian economics (in particular, the idea that the government needs to spend more during a recession to make up for lost spending by consumers and businesses), many Republicans say they aren’t persuaded that government stimulus efforts help more than they hurt in the long run. But history isn’t on their side, and their concerns about deficits would be more believable if they didn’t evaporate whenever tax cuts or more defense spending is on the table.

Regardless, the administration had fitfully sought a deal with congressional Democrats, with Trump himself calling on congressional Republicans several times to stop being so tight-fisted with tax dollars. Last month he praised a $1.5-trillion stimulus proposal floated by the bipartisan congressional Problem Solvers Caucus; more recently, he tweeted a demand for more stimulus while being treated for COVID-19 at Walter Reed National Military Medical Center.

Yet the two sides never could bridge their differences over how much to spend and what to spend it on. In particular, Democrats sought considerably more money than the White House wanted to spend to help state and local governments maintain services, to boost COVID-19 testing and tracing, and to help laid-off workers.

The impasse left the Fed’s Powell in the same place as former Fed Chairman Ben S. Bernanke during the Great Recession: Trying to provide as much stimulus as he could through monetary policy while prodding Congress to come off the sidelines. (By the way, Bernanke’s suggestions fell on deaf ears too.)

After promising to come through with a “major stimulus bill” if he wins in November, Trump offered his rationale for not acting now. “Our Economy is doing very well,” he tweeted. “The Stock Market is at record levels, JOBS and unemployment also coming back in record numbers. We are leading the World in Economic Recovery, and THE BEST IS YET TO COME!”


The stock market tanked immediately after Trump’s tweet. And last week’s jobs report shows that the pace of hiring has cooled substantially.

Addressing (virtually) the annual meeting of the National Assn. for Business Economics, Powell noted that stimulus efforts by the Fed and Congress “have so far supported a strong but incomplete recovery in demand and have — for now — substantially muted the normal recessionary dynamics that occur in a downturn.” But “there is still a long way to go,” he added, noting that payrolls have been cut in half and that the unemployment rate — officially at 7.9% — is really closer to 11%.

One of the main risks now, Powell warned, “is that a prolonged slowing in the pace of improvement over time could trigger typical recessionary dynamics, as weakness feeds on weakness. 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.”

Fed chairs do not routinely warn of “tragic” outcomes looming for the U.S. economy.

Powell also directed some remarks at those, like many congressional Republicans, who think that stimulating the economy now is too risky.

“The expansion is still far from complete,” Powell said, referring to the rebound from the pandemic-induced plummet in the economy. “At this early stage, I would argue that the risks of policy intervention are still asymmetric. Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth. By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste. 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.”

Hmm. “Out of the woods” — where have we heard that before?


It’s funny how the relationship between Powell and the president who named him Fed chairman has evolved. Trump used to hector Powell for not pumping enough gas into the economy back when things were going well. Now that they aren’t, the shoe is on the other foot. Either way, it’s an uncomfortable fit.