The Finance 202: Mnuchin, Kudlow split points to leadership vacuum behind coronavirus stimulus stalemate

Christel Deskins

Up the street that afternoon, White House economic adviser Larry Kudlow left a different impression. “I don’t think the V-shaped recovery depends on the package, but I do think a targeted package could be a great help,” Kudlow told reporters at the White House. The mixed signals from within the […]

Up the street that afternoon, White House economic adviser Larry Kudlow left a different impression. “I don’t think the V-shaped recovery depends on the package, but I do think a targeted package could be a great help,” Kudlow told reporters at the White House.

The mixed signals from within the Trump administration about the urgency of another pandemic relief package is pointing to a leadership vaccuum as lawmakers are swiftly running out of time to approve one. 

President Trump added to the confusion last week. After largely remaining out of the fray, he jumped in to criticize Republicans for backing too small of a package and called on both sides to embrace another round of $1,200 checks to lower and middle income Americans. With conflicting signals, chances for action remain remote, even as some grim economic indicators continue landing. 

President Trump himself could be providing cover to Republicans wary of new spending and outright pressure on those opposed to it. But he has not focused on the matter, instead heralding an economic recovery he says is well under way. The chances for action remain remote, even as some grim economic indicators continue landing.

Congressional Democrats and the administration did clear one hurdle. House Speaker Nancy Pelosi (D-Calif.) and Mnuchin struck a deal the House then overwhelmingly approved to fund the government through Dec. 11, dodging the threat of a shutdown in seven days.

Yet that bipartisan breakthrough doesn’t augur new hope for the stymied stimulus talks.

For one, the split between Mnuchin and Kudlow points to a longer history of shifting messages from the Trump team and Republican leaders about how much extra support the economy needs.

Administration officials said there is no daylight between Mnuchin and Kudlow about their preferred path forward. “Unless I’m missing something, I don’t think the two are divergent,” one White House official said. “The recovery is strong, but [the administration] continues to advocate for a targeted package focusing on jobs and schools.”

But Republicans have struggled to unify behind a negotiating position over the last several months. Last month, after two weeks of negotiations with Democrats failed to produce a breakthrough, Trump announced four executive actions he presented as fixes for relief programs that expired at the end of July. The efficacy of the orders fell far short of his claims. And subsequent efforts to revive talks with congressional Democrats sputtered, as Pelosi held firm on her demand for a $2.2 trillion package — as far as she said was willing to budge from the $3.4 trillion bill the House approved in May.

Senate Republicans tried to revive negotiations with a $300 billion proposal that offset a $650 billion overall price tag by repurposing unspent money from existing relief programs. Pelosi dismissed it out of hand and Senate Democrats unanimously voted it down. It dropped some White House priorities, including another round of $1,200 stimulus checks to lower- and middle-income Americans. Yet even then, Kudlow — who has favored tax cuts as a means to help struggling workers and businesses — said the administration “can absolutely live with it” if Congress were to approve no new spending.

Mnuchin, testifying alongside Federal Reserve Chair Jerome Powell, outlined the administration’s priorities.

“Unlike the sweeping rescue bill passed by Congress in March, Mnuchin said another relief package would focus specifically on helping kids — perhaps through money to schools — and protecting jobs in hard-hit industries like travel and restaurants,” Rachel Siegel reports. “Mnuchin added that there is ‘broad bipartisan support for extending the PPP,’ especially to help small businesses.”

And both Mnuchin and Powell made the point that there is little more the Fed or the administration can do to provide relief through existing programs. “I unfortunately think there’s not much more we can do,” Mnuchin said. And Powell said monetary and fiscal policy should continue to work in tandem, suggesting lawmakers do their part by authorizing new spending. “The recovery will go faster if we have both tools [from the Fed and Congress] continuing to work together,” Powell said. 

“The message Powell and Mnuchin delivered was a nuanced version of: Our hands are tied. You folks should pass a stimulus bill,” Capital Alpha’s Ian Katz wrote in a note. 

The ongoing stalemate comes as the economy continues flashing distress signals.

“Markets have been down the past three weeks, in part on pessimism about a deal on more stimulus,” Siegel writes. “Meanwhile, a little more than half of the 22 million payroll jobs lost in March and April have not returned, and state and local governments are facing huge fiscal shortfalls. Health officials and economists fear the coming flu season could slow the pace of the recovery.”

And new data from Yelp reveals nearly 100,000 small businesses have closed permanently over the course of the pandemic.

“Both employment and overall economic activity… remain well below their pre-pandemic levels, and the path ahead continues to be highly uncertain,” Powell warned lawmakers in his testimony. He is set to appear on the Hill again this morning, testifying before the House select subcommittee on the coronavirus crisis. 

Market movers

Stocks are looking up after the S&P 500 broke its losing streak.

The index had been down for four straight days: “Dow futures pointed to a gain of more than 150 points. S&P 500 and Nasdaq 100 futures also implied a higher open,” CNBC’s Maggie Fitzgerald reports.

“Better-than-expected earnings from Nike and KB Home lifted sentiment on Wall Street after the bell on Tuesday. Nike saw digital sales rise 82 percent, driving the stock up after hours. However, shares of Tesla fell in extended trading after Elon Musk offered new delivery predictions for 2020 and detailed a new battery design that it claims will make its cars cheaper to produce.”

  • Where the market closed: “The major averages snapped multi-day losing streaks, all closing in the green. The Dow Jones Industrial Average climbed 140 points and the S&P 500 climbed 1.1 percent. The technology-heavy Nasdaq Composite was the relative outperformer, popping 1.7 percent as Amazon surged 5.7 percent.” (Amazon CEO Jeff Bezos owns The Washington Post)

Latest on the federal pandemic response

Airlines, unions mount lobbying blitz before layoffs.

The prospects for aid is dimming: “Weeks of lobbying, trips to the White House by airline executives and the prospects of massive job losses in states where incumbent Republican Senators face tough re-election challenges — such as at airline hubs in Georgia, Arizona and Colorado — haven’t resulted in movement,” Bloomberg News’s Alan Levin, Billy House and Keith Laing report.

“The frustration was evident at a press conference outside the Capitol Tuesday held by a group of airline executives, union leaders and lawmakers from both parties. ‘I just can’t believe that we may not be able to do the right thing simply because our elected officials can’t come to any sort of compromise agreement,’ said Doug Parker, chairman and chief executive officer at American Airlines Group Inc.”

  • Some airlines have salvaged a profit by hauling more cargo: “Of the world’s 30 largest airlines by revenue, just four reported profits for the April-June quarter, according to a Wall Street Journal analysis. They are all based in export-heavy South Korea or Taiwan, benefiting from the surge in demand for tech components and electronic gadgets as more people work from home, and for personal protective equipment, much of it produced in Asia. Continuing demand for automobile parts and other Asia-made goods has also helped,” the Journal’s Eun-Young Jeong reports.

Democrats seek investigation into Pentagon’s coronavirus fund: “Congressional Democrats sharply criticized a Defense Department decision to repurpose a $1 billion coronavirus fund into an economic stimulus for defense contractors, a change the lawmakers say violated congressional intent. Two lawmakers asked for an investigation and public hearings on the matter following a Washington Post article that revealed the change,” Aaron Gregg and Yeganeh Torbati report.

Coronavirus fallout

200,000 Americans have died from covid.

The grim milestone is reminder of our incalculable loss: “Two hundred thousand deaths is akin to losing the entire population of Salt Lake City or Montgomery, Ala. — a devastation. It is also the number of covid-19 fatalities that Trump said at a March 29 news conference would mean that ‘we all together have done a very good job,’” Marc Fisher, Annie Gowen, Lori Rozsa and Maria Sacchetti report.

“Yet six months in, Americans are tuning away from news about the pandemic. Google searches for virus information have plummeted by nearly 90 percent since March. Americans tell pollsters they hold little hope that the danger will recede anytime soon.”

From former Treasury official Tony Fratto: 

More deaths than from U.S. battles in the last five wars combined. CNN adds more context to the staggering toll: “Already, Covid-19 has killed more people in the US than Americans killed in battle during the five most recent wars combined: the Korean War, the Vietnam War, the Iraq War, the War in Afghanistan and the Persian Gulf War. The loss of life is like suffering the effects of 109 Hurricane Katrinas. Or enduring the 9/11 attacks every day for 66 days.”

More from the United States:

  • FDA poised to announce tougher standards for a covid-19 vaccine: “The agency is issuing the guidance to boost transparency and public trust as it approaches the momentous decision of whether a prospective vaccine is safe and effective,” Laurie McGinley and Carolyn Y. Johnson report.
  • CDC discourages trick or treating: “Door-to-door trick-or-treating and costume masks and parties are discouraged this year due to the pandemic, the CDC said,” CNN’s Shelby Lin Erdman reports.
  • Testing is hampered by shortages of critical ingredient: “The latest testing problems largely stem from a shortage of reagents, the chemicals used to process the tests, medical officials said. Some hospitals and other testing operations that spent months bolstering their capacity are now reverting to restricting Covid-19 tests to the most essential patients, as they did in the spring,” WSJ’s Dan Frosch reports.

From the corporate front:

  • Sizzler files for bankruptcy: “The 62-year-old company said it filed for Chapter 11 because of covid-19, which forced it to temporarily close its restaurants’ dining rooms. Sizzler USA also had problems paying rent. The filing is only for Sizzler’s 14 company-owned restaurants — not its international locations or more than 90 franchised US restaurants,” CNN Business’s Jordan Valinsky reports.
  • Finance industry begins staggered return to New York offices. “Large banks, where face time and long hours are considered virtues, are generally urging workers to come back,” NYT’s Kate Kelly reports. “Many hedge funds, which attract more seasoned workers who can afford sophisticated workstations at home, are notPrivate-equity firms and asset managers, which have a mix of workers and deal with both long- and short-term investments, appear to be taking a middle path.”
  • Brookfield Properties’ retail arm is laying off 20 percent of its workforce: “A number of other retail real estate owners have felt similar pain. Tennessee-based mall owner CBL & Associates is expected to file for bankruptcy protection no later than Oct. 1,” CNBC’s Lauren Thomas reports.
  • Ralph Lauren to lay off thousands: “The New York-based fashion house, which has 530 stores globally, said the changes would see it move more business online. The company did not say how many or what type of jobs could go, but based on its last reported total workforce of about 24,900 employees, the changes could impact more than 3,700 employees,” Reuters’s Uday Sampath reports.
  • Disney appeals to California to reopen Disneyland: “With approval from local authorities, Disney has reopened its parks in Shanghai, Paris and Florida with limited attendance, face mask requirements and other measures to prevent covid-19 infections. Hong Kong Disneyland is set to reopen on Friday,” Reuters’s Lisa Richwine reports. The company’s oldest theme park has been closed for six months.

Pocket change

Wells Fargo CEO said during private meeting that there’s not enough diverse talent.

Charles Scharf was trying to explain why the bank could not meet its own hiring goals: “He also made the assertion in a company-wide memo June 18 that announced diversity initiatives as nationwide protests broke out following the death of George Floyd, an unarmed African-American man, in police custody,” Reuters’s Imani Moise, Jessica DiNapoli and Ross Kerber report.

“‘While it might sound like an excuse, the unfortunate reality is that there is a very limited pool of black talent to recruit from,’ Scharf said in the memo, seen by Reuters. Scharf spent more time listening than speaking during the previously unreported 90-minute call which he initiated. His comments about Black talent rubbed some attendees the wrong way … Not all attendees recalled being offended.”

Nikola’s finance chief defends business model: “Nikola, a Phoenix-based startup with backing from General Motors Co., Robert Bosch GmbH and others, has come under scrutiny recently following allegations it misled investors about the progress of its technology,” the Journal’s Mike Colias reports.

“The allegations about the startup have raised questions among investors and analysts about whether Nikola’s partner companies did their due diligence. GM Chief Executive Mary Barra said the auto maker conducted ‘appropriate diligence’ when she was asked about the topic on a recent analyst call.”

Former Treasury Secretary Timothy Geithner penned Powell’s Time 100 entry: “For a time, his greatest challenge seemed to be how to preserve the independence of the Fed from a President eager to reassert political control over monetary policy,” Geithner writes.

“He handled that threat with characteristic calm and grace—and then led the Fed’s stunningly powerful response to the existential threat of the pandemic with great personal strength. He has kept the Fed an island of competence in the sea of incompetence that is the U.S. political system, helping soften the damage to the economy from a staggering public-health failure.”

Campaign 2020

Jamie Dimon says he’s OK with higher taxes, not a wealth tax.

The JPMorgan CEO also praised Trump’s corporate tax cuts: “’I’m not against having higher tax on the wealthy. But I think that you do that through their income as opposed to, you know, calculate wealth which becomes extremely complicated, legalistic, bureaucratic, regulatory, and people find a million ways around it. I would just tax income,’ Dimon said at an event in India, suggesting that it’s harder to cheat on such a tax because income is ‘given,’” CNBC’s Yen Nee Lee reports.

“Dimon said the president’s tax policies are among some of the ‘very good things’ that he’s done for the U.S. economy. He explained that the U.S. has traditionally been a ‘red tape society’ with a bureaucracy that ‘slows down a lot of business.'”

Billionaires Haim and Cheryl Saban plan to ramp up support for Biden: “Their announcement of giving more toward competitive Senate races for Democrats follows the death of the late Supreme Court Justice Ruth Bader Ginsburg and the ongoing battle on Capitol Hill on whether to move ahead with a new judicial nominee just before the election,” CNBC’s Brian Schwartz reports.


  • Powell is set to testify before the House select subcommittee on the coronavirus pandemic.
  • The Senate Budget Committee holds a hearing on the Congressional Budget Office’s outlook.
  • Anthony S. Fauci, Food and Drug Administration Commissioner Stephen Hahn and Centers for Disease Control and Prevention Director Robert Redfield testify before the Senate Health, Education, Labor and Pensions Committee.
  • General Mills and Cintas are among the notable companies reporting their earnings.
  • Mnuchin and Powell testify before the Senate Banking Committee for the quarterly Cares Act update.
  • The Labor Department reports the latest weekly jobless claims.
  • A House small-business subcommittee holds a hearing on the Paycheck Protection Program.
  • Costco, Darden Restaurants, CarMax, Rite Aid and BlackBerry are among the notable companies reporting their earnings.
  • A House Ways and Means subcommittee holds a hearing on restaurants during the pandemic.

The funnies

Bull session

Source Article

Next Post