President Donald Trump sent a message Friday to anyone expecting major economic aid to head off a coronavirus recession: Don’t hold your breath.
With financial markets reeling, some economists back direct bailouts for affected workers and businesses to prevent a contraction of the already-slowing American economy. But as he signed the $8.3-billion emergency coronavirus spending bill passed by Congress – more than triple the amount the White House had requested – Trump waved off the idea of a new fiscal stimulus to protect America’s record-breaking economic expansion, again calling on the Federal Reserve to use its monetary policy tools.
“The Fed should cut and the Fed should stimulate,” Trump told me before leaving the White House to tour tornado damage in Tennessee. And he evinced little concern about the chance of recession anytime soon, declaring, “I think we’re in great shape.”
The President’s characteristically upbeat assessment does not match the darkening mood among business analysts as the coronavirus crisis deepens in the US and around the world. Mark Zandi, an economist with Moody’s Analytics, now pegs the odds of recession this year at 50%.
Goldman Sachs has downgraded its forecast for economic growth to 1% or less for the first three quarters of 2020. The bank noted that, in addition to effectively handling the public health crisis, direct spending by the White House and Congress can avert economic damage from coronavirus better than monetary policy through the Fed interest rate cuts Trump calls for.
“Markets have realized rate cuts can’t cure what ails us,” observed Diane Swonk, an economist at the Grant Thornton business consulting firm. Better, she argued, for Washington to help idled workers with lost wages, potential patients with coronavirus-related medical costs and businesses with vanished revenues.
“The blow to profits could turn into a vicious cycle of layoffs and lost demand,” Swonk wrote her business clients this week. “The hope is to prevent current economic losses from mutating into a financial crisis.”
Offsetting the coronavirus threat would require a package in the range of $100 billion, Swonk says – comparable to what President George W. Bush and Congress enacted to combat the effects of Hurricane Katrina. Jason Furman, President Barack Obama’s former top economic adviser, has called for a $350 billion stimulus that would send $1,000 to every taxpaying US resident and $500 to each of their children.
Yet comments by Trump and his top economic aide made clear the White House does not currently back anything close to that scale.
“We’re not looking at these massive, federal, throw-money-at-people plans,” National Economic Council director Larry Kudlow told reporters. “We are looking at timely and targeted (efforts) where we can do the most good.”
With airlines already suffering from canceled flights, Kudlow cited “micro forms of assistance” that could help sectors including transportation, manufacturing, farming and small businesses. He offered no details.
The $8.3-billion emergency legislation Trump signed contains one such micro step. It included $1 billion that the Small Business Administration use to leverage $7 billion in loans to struggling small businesses.
The evolution of that legislation underscores the Republican administration’s instinctive reluctance to back large new stimulus spending. Even with its coronavirus response under sharp criticism, the White House only requested $2.5 billion. Lawmakers in both parties insisted on more.
A few days ago, Trump tweeted a request that House Democrats enact a one-year cut in the Social Security payroll tax cut. That idea appears to be going nowhere, since Democrats swiftly rejected it and previous Republican tax cuts have already helped fatten the federal budget deficit back to $1 trillion annual levels.
In his remarks at the White House, Trump made clear he considers major new fiscal stimulus unnecessary anyway. The President actually credited coronavirus for good news from the Labor Department, which announced that employer payrolls swelled by a greater-than-expected 273,000 jobs in February.
“We’re going to have Americans staying home instead of going and spending the money in other countries,” Trump explained. “And maybe that’s one of the reasons the jobs numbers are so good. We’ve had a lot of travel inside the USA.”
His “America First” reasoning has not lifted the gloom over financial markets, which fear the effects of a global recession even if the US avoids one. But with the same blithe confidence he has displayed in downplaying the coronavirus threat, Trump predicted Wall Street would “really bounce back” soon because “the country is so strong.”
“I did an interview on Fox last night,” Trump concluded. “And I said, ‘Calm. You have to be calm.’ It’ll go away.”