Analysis: It’s an insane time for Trump to reject a stimulus package
Trump knows all of this. That’s why just last month the president was pushing Republicans in Congress for more, not less, fiscal stimulus.
“It was an unforced, egregious error that puts the economy at substantial and needless extra risk,” said Larry Summers, former US Treasury Secretary for President Bill Clinton. “The last thing we need to do is cancel our recession insurance at a moment like this.”
Double-dip recession risk is rising
Still, it’s not clear whether Congress will support one-off measures. And the fact that comprehensive stimulus talks are dead is a negative for the economy.
“There’s no doubt the risks of a double-dip recession, while still well under 50%, are substantially greater today than they were three days ago and much greater than a month ago when everyone could have reasonably assumed there could be stimulus,” said Summers, who served as President Obama’s top economic adviser during the Great Recession.
It’s not just Obama-era officials saying the economy needs stimulus.
Kevin Hassett, Trump’s former top economic adviser, said Washington still needs to cushion the negative economic shock from the pandemic.
“Jay Powell is right to emphasize that more fiscal policy is needed,” Hassett told CNN’s Poppy Harlow. “With so many businesses still closed around the country, we remain close to the edge of an economic calamity.”
‘Abrupt shift’ from Trump
Stimulus hopes have been dimming for some time.
“The president himself had pressed publicly for an agreement just a few days earlier, so this represents an abrupt shift,” the Wall Street bank wrote in a note to clients Wednesday. “One would expect politicians in both parties to want to continue negotiations, if only to maintain the appearance of progress as the election approaches.”
“This seems unlikely to produce an agreement on a large fiscal package,” Goldman Sachs economists wrote.
‘Water cannon’ vs ‘squirt gun’
The Fed is not best suited to speed up the economy for the simple reason that borrowing costs and access to capital are not the problem.
“At a moment like this, fiscal policy is like a water cannon,” said Summers, now a professor at Harvard University. “And the remaining capacity of the Fed is like a squirt gun.”
Repeating the mistakes of the Great Recession?
Senate Republicans have been reluctant to go big on a stimulus package because of worries about the giant hole in the federal budget.
“That was a substantial error,” Summers said. “We’re in danger of making that same kind of error again.”
