Trump’s ending of stimulus talks will imply a ‘a lot slower’ restoration, Fed’s Mester says
President Donald Trump’s announcement that no further stimulus talks will happen until after the November election will put a dent in efforts to bring the economy back from its coronavirus pandemic-induced slide, Cleveland Federal Reserve President Loretta Mester said Tuesday.
“Certainly, you know, the recovery will continue without it, I think, but it’s going to be a much slower recovery and it’s disappointing that we didn’t get a package done,” Mester said on CNBC’s “Closing Bell” just a little while after Trump delivered the stimulus news.
“There’s still a lot of households and a lot of small businesses that really need that kind of help, and even though the recovery has come in somewhat stronger than many of us thought, it would, we’re still in a pretty big hole,” she added.
The remarks helped cap a whirlwind day in which Fed Chairman Jerome Powell, speaking earlier to the National Association for Business Economics, called for more fiscal support to workers and businesses still in need.
However, Trump said in the afternoon that he had directed his negotiators to call off talks until after the Nov. 3 election. The talks had seen Democrats look for a much more aggressive spending package than the White House was willing to sign off on, after the two sides had agree on the CARES Act in March that provided more than $2 trillion in relief funds.
Despite the relief, GDP plunged 31.4% in the second quarter but is on track to recoup most of those losses in the third quarter. Most economists, though, expect a much slower growth rate from there, and employment gains from May through August began to decelerate in September.
The Fed itself has been active on the stimulus front, pulling benchmark short-term borrowing rates down to near zero and instituting more than a dozen programs aimed at business lending and financial market functioning.
Though Mester said the Fed is always at the ready to provide aid where it can, she said she is “very comfortable” with where policy is now.
“We’re doing our part,” she said. “I think the fiscal authorities, who were very good at the beginning coming in with a lot of aid, I think they need to do more now.”
Mester added that she thinks that on top of fiscal and monetary help now, the country needs to keep investing in health care measures aimed at containing and eliminating the virus.
“Investments in those kinds of things that can actually improve our ability to test, trace and get a vaccine would be hugely impactful,” he said.