Donald Trump’s response to the coronavirus outbreak and the damage it’s inflicting on global markets is most notable for what he hasn’t done.
The president has so far balked at pursuing a major fiscal plan to counter the market turmoil stemming from the virus’s spread. He said Tuesday it’d be a good time for Congress to cut income taxes again but hasn’t made his own proposal, and he is not considering a payroll tax cut or a rollback of tariffs on Chinese imports, his Treasury secretary said.
Instead, Trump appears content to wait out the crisis, even as it emerges as a potential threat to his re-election, which he’s staked squarely to the performance of the American economy. His clearest calls have been directed at the Federal Reserve. “More easing and cutting!” Trump tweeted Tuesday after the central bank announced an emergency 50 basis point rate cut.
Yet concerns are growing in the business community, and industries may be looking for more than just monetary policy to cushion the blow. David Kelly, chief global strategist at JPMorgan Asset Management, said there’ll be calls on the government to act: “Even with this Fed action, there will likely be growing calls for fiscal action, particularly to provide direct support to businesses that may increasingly suffer from the public response to virus fears.”
The U.S. Chamber of Commerce is holding a news conference Wednesday with leaders from travel and retail industry groups, and airline chief executives are scheduled to meet with Vice President Mike Pence at the White House.
The Fed on Tuesday cut interest rates outside of its normal cycle of meetings for the first time since the financial crisis of 2008. “The coronavirus poses evolving risks to economic activity,” the central bank said in a statement. The benchmark S&P 500 index fell nearly 3 percentage points on Tuesday after Monday’s rally, and is down more than 10% over the last 10 days.
More than 100 Americans have been infected by the virus and nine in Washington State have died. The government’s top health professionals have warned that the illness is likely spreading.
Trump and his advisers, though, believe the economy isn’t under serious threat, that the government is capable of meeting challenges posed by the virus, and that an overreaction could make things worse.
“The country’s in great shape. The market’s in great shape. I’m focused on this,” Trump said Tuesday after a visit to the National Institutes of Health in Maryland.
Pence on Tuesday reiterated Trump’s view: “The president has said to us, the priority is the health and safety of the American people. We believe the strength of the American economy will take care of itself.”
And Larry Kudlow, Trump’s top economic adviser, agreed. “I don’t want to downplay it. This is a human tragedy, which it is. It’s not an economic tragedy for the U.S. and I still believe that,” he said.
Asked if he saw an economic crisis developing, after the Fed’s emergency rate cut failed to stop the market plunge, Kudlow on Tuesday said: “I don’t. I’ll be honest.”
Views on stocks remain decidedly mixed after the Fed cut fell flat. “The market was expecting a more coordinated and decisive response and not just one from the Fed,” said Solita Marcelli, deputy chief investment officer for the Americas at UBS Global Wealth Management.
Trump’s re-election bid this year is based heavily on the economy, and fresh market highs once were a staple of his rally speeches. He celebrated a rebound Monday before claiming Tuesday that he had not seen that the Dow Jones Industrial Average had sunk nearly 3%.
Trump and his administration have said they’ll propose a tax cut later this year as part of a re-election platform, but he began Tuesday by calling on House Democrats to propose a “very simple one year payroll tax cut.” The tweet was part of the administration’s efforts to check how receptive Capitol Hill is to a new tax cut package, one administration official said.
But Treasury Secretary Steven Mnuchin later said the administration isn’t considering a payroll tax cut as part of its response to the coronavirus. He added that the virus sell-off isn’t comparable to the financial crisis a decade ago. “We will get through this,” he told reporters Tuesday. Market swings are happening because “the markets struggle to assess new risks.”
The administration has loosely discussed targeted measures, like supporting companies to avoid furloughing workers and guaranteeing sick pay to encourage the ill to stay home, a person familiar with the matter said.
So far, Trump has pointed to other culprits for the slide in stocks. He tried at first to talk up stocks as a buying opportunity a week ago, before blaming the media and Democrats for exaggerating the risk of the virus. He then pivoted back to his long-running complaint that interest rates are too high, publicly badgering the Fed for days before Tuesday’s emergency cut.
For now, the president should keep focusing on stopping the spread of the virus itself, said Joel Griffith, a research fellow at the Heritage Foundation, a conservative policy institute. “In that respect I think the Trump administration is on the right course,” Griffith said.
“We’ve got a fundamentally strong economy,” he said. “I’m very concerned that too many people are sensationalizing these events, and that might encourage counterproductive behaviors and needless economic consequences.”
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