Larry Kudlow sees ‘low probability’ of stimulus before US election

Larry Kudlow, the top White House economic adviser, said there was a “low probability” that Congress would agree with Donald Trump’s call for a series of piecemeal stimulus measures to help the US economy.

His comments on Wednesday came after a day of confusion over the US president’s stance on providing further aid to households and businesses hit by the pandemic.

Mr Trump on Tuesday first ditched negotiations on a broader fiscal relief bill, leading to a sell-off in equity prices. Then a few hours later, he called for talks on smaller, more targeted aid, causing global equities to recover some ground.

On Wednesday, Nancy Pelosi, the Democratic House Speaker, and Steven Mnuchin, the US Treasury secretary, who have been leading the negotiations, did speak again about economic stimulus, suggesting that the talks had not been totally abandoned.

But appearing on CNBC, Mr Kudlow was downbeat about the prospects for even a limited agreement, saying he could not make any predictions about the outcome. “This would probably still be low-probability stuff. I don’t want to rule anything in, I don’t want to rule anything out,” he added.

In a sign of the friction surrounding the discussions, Ms Pelosi rebuffed Mr Mnuchin’s appeal for a standalone bill to help US airlines and prevent lay-offs in the sector. According to Drew Hammill, one of her senior aides, the speaker told Mr Mnuchin that House Republicans had opposed similar legislation recently and the secretary should review that bill so they could have a more “informed conversation”.

The piecemeal approach to stimulus legislation had been floated by Republican lawmakers and the White House in recent months. But Democrats have dismissed such efforts as woefully insufficient.

In terms of a large package, Democrats have been pushing for $2.2tn in new spending, whereas the Trump administration had been willing to go up to $1.6tn, with many Republican lawmakers on Capitol Hill saying even that was excessive.

The biggest sticking point in the negotiations was the Democratic demand for aid to cash-strapped state and local governments, without which they will have to make aggressive budget cuts. White House officials and Republicans have accused Democrats of making excessive demands, while Democrats have countered that Republicans have dragged their feet for months and are leaving the American economy in the lurch while the pandemic rages.

The end of talks would leave many US households and businesses, from restaurants to airlines and hotels, facing further financial distress in the coming weeks — and economists, including those at the Federal Reserve, have warned that the damage to the recovery would be significant.

Jay Powell, chair of the Federal Reserve, said on Tuesday that the economic recovery “will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods”.