The US president stops negotiations on a stimulus package hours after central banker Jerome Powell warned Washington of “tragic consequences” in the absence of such a stimulus.
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On Wall Street, the stock market rally suddenly hit a roadblock on Tuesday evening. US President Donald Trump will immediately stop talks about a fresh stimulus package for the economy. ‘I ordered my negotiators to stop until after the elections. Immediately after I win, we will implement a major stimulus plan focused on hardworking Americans and small businesses, ”it said.
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De Dow Jones
closed 1.3 percent lower, Nasdaq plunged 1.6 percent into the minus. Traders scratched their hair at the decision. “Had he prolonged the talks, he could at least have blamed the opposition,” says ING economist Rob Carnell. ‘Now he is pulling the plug himself, at a time when many federal states are struggling to find money for extra unemployment support. This seems like a gamble that has very little chance of closing the gap with Democratic candidate Joe Biden.
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As was often the case during this crisis, Powell dropped the classic veiled language of central bankers. He plainly warns of ‘tragic’ consequences if politicians fail to act. One of the risks is that a flare-up of infections will severely curtail economic activity, with tragic consequences for many. An additional risk is that the weak growth will become self-nourishing. Such a long period of unnecessarily slow growth would exacerbate the existing inequalities in our economy. That would be tragic ‘.
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Powell emphasizes that it is better for policymakers to push the accelerator too much than too little at this point. ‘Too little support would lead to a weak recovery, causing unnecessary suffering for families and businesses. In the long term, more business failures will lead to lower productivity and hinder wage growth. On the other hand, the risk of too much stimulus is much smaller for the time being. Even if the policy measures turn out to be bigger than necessary. ‘
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“The recovery will be stronger if fiscal and monetary policy work in the same direction to support the economy until it is out of harm’s way,” Powell concludes. The contrast with mid-March, at the start of the pandemic, is striking. Then formed a cry for help and drastic action from the Federal Reserve the signal for political Washington to come up with a strong stimulus itself, which was also the start of a spectacular stock market rally and economic recovery. That recovery is in jeopardy, now an important part of the emergency aid this summer has passed and the number of infections is increasing again.
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