Trump Kills Fiscal Stimulus Negotiations

In which I try to interpret today’s news; we will see how well this ages…

President Donald Trump killed negotiations over a fresh fiscal stimulus package just days after tweeting support for the effort. There has been a considerable amount of confusion over Trump’s actions. On face value, it seems like a foolish maneuver. Trump is losing ground quickly in the polls and now even has lost his lead against Biden on the economy. In killing a fiscal stimulus package, Trump is straight up taking on an unpopular position. Moreover, by leaving the Senate free to pursue the confirmation of Supreme Court nominee Amy Cohen Barrett, he is pushing another unpopular position. From a campaign perspective, it seems ludicrous.

What I think is happening is that Trump did not willingly kill the stimulus talks. Instead, he is yielding to Senate Majority Leader Mitch McConnell. McConnell has been repeatedly resisting a large package. He can’t deliver his caucus on a stimulus deal that is acceptable to Democrats. Any package acceptable to Democrats he would have to move without the support of a large portion of Senate Republicans. And some Democrats were probably unhappy with a smaller package.

Ultimately, I think McConnell just isn’t willing to get a deal done. Which I think is a point that has been lost in the discussion over the stimulus. McConnell has had plenty of opportunity to make a deal, but hasn’t. I suspect that he just isn’t falling in line with Trump. It’s Trump that has to fall in line with McConnell, and McConnell really only wants one more thing from Trump, and that’s the Supreme Court seat. It is possible that given the tight Senate races in too many “safe” states, McConnell realizes that Trump has outlived his usefulness.

It’s always risky to speculate on Trump’s motivations, but at this point he is probably counting on that Supreme Court seat to keep him in power in the event of a contest election and if McConnell said “do you want the stimulus or ACB?” Trump would choose that latter. But the way the polls are breaking a contested election seems less likely each day. Voting has already begun in some states and Trump’s repeated attempts to undermine the integrity of the elections is most likely backfiring by encouraging his opposition to focus on their voting strategy.

Why though would Senate Republicans be willing to risk losing those close races? Well, I think it is arguably the case that at this point another stimulus package won’t change the election. You probably can’t get the checks out the door fast enough. So maybe it just isn’t worth the fight anymore. More speculation, but I think they are fundamentally preparing for a post-Trump world in which they can either revert to ideological opposition to bigger government or just attempt to hamstring a Biden administration.

Interestingly, Trump’s abandonment of fiscal stimulus comes soon after the latest plea from Federal Reserve Chair Jerome Powell for additional support for what he sees as a still struggling economy. I think that Powell is pushing an overly bearish outlook which may be appropriate from a policy perspective but I suspect leads some market participants to underestimate the resiliency of the economy (evergreen observation really). That though is a topic for another time. For now, I suspect the end of fiscal support talks improves the odds of a Democratic sweep in the upcoming election. In that case, the stimulus is only delayed. There is maybe also still space in the near for some targeted aid, such as for airlines, just not a big deal.

Bottom Line: The next few months are going to be crazy. Buckle up.