US president Donald Trump has abruptly broken off talks with congressional Democrats on a new fiscal stimulus package until after next month’s presidential election.

The move, announced by Mr Trump on Twitter on Tuesday, triggered an immediate sell-off in US equity markets as economists warned that the lack of government support could jeopardise America’s recovery from the coronavirus pandemic.

Unless the decision is reversed, it means that many American households, including those hit by unemployment, and businesses, from restaurants to airlines and hotels, could face financial distress in the weeks and months to come.

The US president’s intervention came a day after he returned to the White House from a three-day stay at a military hospital in Maryland where he received treatment for coronavirus.

Over the course of the weekend, Mr Trump had appealed for a deal, as Steven Mnuchin, the Treasury secretary, and Nancy Pelosi, the Democratic speaker of the House of Representatives, had attempted to narrow differences between the sides, but to no avail.

On Tuesday, after joining a call with senior officials and Republican lawmakers who have long been sceptical of a large spending package, the US president called a halt to the negotiations.

In his tweet, Mr Trump stressed 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 push through aggressive budget cuts. Overall, Ms Pelosi has proposed a new round of stimulus worth $2.4tn, whereas the White House has offered $1.6tn, leaving a large gap between the sides.

“Nancy Pelosi is asking for $2.4 Trillion Dollars to bailout poorly run, high crime, Democrat States, money that is in no way related to COVID-19. We made a very generous offer of $1.6 Trillion Dollars and, as usual, she is not negotiating in good faith,” Mr Trump wrote.

“I am rejecting their . . . request, and looking to the future of our Country. I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business.”

Instead of more stimulus for the US economy, Mr Trump said he wanted Mitch McConnell, the Republican majority leader in the US Senate, to focus on securing the confirmation to the Supreme Court of Amy Coney Barrett, the conservative judge he nominated to replace the late liberal justice Ruth Bader Ginsburg.

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The likely end to talks on additional fiscal stimulus came only a few hours after Jay Powell, the chair of the Federal Reserve, warned in a speech that “too little” fiscal support could lead to “unnecessary hardship” across the economy, highlighting the importance of the matter to the US central bank.

“The 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,” Mr Powell said, adding that it would be “tragic” if it exacerbated “existing disparities” in the US economy.

Economic officials around the world may also be concerned about the impact of a stunted US recovery on the global economy.

Also on Tuesday, Kristalina Georgieva, the managing director of the IMF, warned against “premature withdrawal” of government support. “Where the pandemic persists, it is critical to maintain lifelines across the economy, to firms and workers — such as tax deferrals, credit guarantees, cash transfers, and wage subsidies,” she said.

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While Congress and the White House were able to agree on $3tn in stimulus for the economy early in the pandemic in March and April, the negotiations on a second round have been much more difficult. Democrats first passed legislation in the House of Representatives in May to send another $3tn in fiscal support into the economy, but that was quickly rejected by Republicans as excessive.

In recent months, Republican leaders tried to advance their own smaller packages of stimulus measures, but those also failed to garner any traction on Capitol Hill. While some officials in the Trump administration, such as Mr Mnuchin, continued to argue that a deal was needed, others including Mark Meadows, the chief of staff, have been much more reluctant to move in the Democrats’ direction.

The S&P 500 closed down 1.4 per cent, having earlier traded higher, and Treasury bond yields fell as investors sought the relative safety of government debt.

“Today, once again, President Trump showed his true colours: putting himself first at the expense of the country, with the full complicity of the GOP Members of Congress,” Ms Pelosi said in a statement after Mr Trump’s tweets.

“He shows his contempt for science, his disdain for our heroes — in healthcare, first responders, sanitation, transportation, food workers, teachers, teachers, teachers and others — and he refuses to put money in workers’ pockets, unless his name is printed on the check,” she added.


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