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Wednesday, December 2, 2020

In The Fight Between Trump And Powell, The Economy Is The Loser

Businesses are getting hurt in this fight between policymakers. This comes at a time when businesses are already going through a tough time. This is already a very tense moment for these companies.

Mnuchin has ended the Fed’s emergency lending programs which amidst a pandemic are required to backstop the economy. He was subjected to rebukes from the Fed. Mnuchin asked Jerome Powell, Fed Chairman, in the letter sent on Thursday, to hand over the unused $455 billion so that the US Congress can use it for various other purposes. Dec 31 is the expiration date for the programs.

Powell Led Fed’s Criticism Over Reserve’s Program

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According to Mnuchin, the Reserve’s programs have achieved their objective now that the banks are lending, spreads are tightening and markets are responding positively.

The decision was immediately subjected to criticisms from the Federal Reserve. The Fed disagreed saying that it would be preferable for them to keep the programs to act as a backstop for the economy. They usually avoid giving their views on political issues but Powell made it clear that they would require the full set of emergency programs at their disposal. He called the decision as being made too soon on Thursday.

Jerome Powell
Jerome Powell

Businesses also agree. The US Chamber of Commerce stated that the decision shuts the door on significant liquidity options required by businesses in this moment of crisis. It is making it more difficult for the incoming Biden administration.

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Investors are feeling jittery. Dow, Nasdaq Composite, and S&P 500 dropped slightly in Friday trading session.

Mnuchin tried calming the market saying the decision was according to the intention of law on CNBC. Markets ought to be comfortable as they have enough capacity left. He termed his decision as a non-political one.

Big Picture: Trump Vs Powell

Powell has called the timing of the move by Trump’s administration concerning. He has earlier made it clear that the risk during a pandemic is doing too little to support the vulnerable economy. Coronavirus has surged in the US again forcing the states to order a round of restrictions and mask mandates.

According to the University of John Hopkins coronavirus cases in the U.S. hit another high on Thursday with another 185,700 infections. Over 252,000 Americans are dying from the disease.

Philip Marey, strategist, Rabobank observed on Friday in a note that some of the economic data is still unclear. Initial claims of unemployment benefits climbed to 742,000 since it declined for four weeks.

Marey said the lack of fiscal stimulus and the rising coronavirus infections are now finding their way inside the economic data.

That is indeed a very risky moment to abandon American companies when they need help the most.

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