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What the stimulus whiplash means for markets

Raymond James Washington Policy Analyst Ed Mills joins The Final Round panel to discuss what halted stimulus means for the market as uncertainty grows regarding President Trump’s condition in the weeks leading up to the 2020 election.

Video Transcript

SEANA SMITH: Welcome back to "The Final Round." President Trump renewing calls for Congress to pass individual relief bills after halting negotiations, or tweeting that negotiations were halted, yesterday with Democrats until after the election.

So for more on this, we want to bring in Ed Mills. He's Raymond James Washington policy analyst. And Ed, just, first, let me get your thoughts just on some of the headlines that we've gotten over the past 24 hours, Trump initially halting talks, now urging some one-off deals. It's tough to figure out what his strategy is. Where do you stand on this?

ED MILLS: Yeah, no, it's been a very difficult thing to determine. It's been a bit of a roller coaster. I think Politics 101 oftentimes is that if you aren't able to get to a deal, you try to blame the other side.

So with the tweet yesterday afternoon with President Trump saying he rejected the deal, that caused a lot of political problems for him and congressional Republicans because any negative economic news between now and the election could be pinned to him in his rejection of the deal.

I think that's part of the reason why you saw last night him tweeting out that he wanted immediate action, trying to pivot and trying to get the attention back onto congressional Democrats. I don't think that works. The only time I really see any additional aid moving forward is if it passes by unanimous consent out of the Senate. That is the only time, in my opinion, where House Democrats really feel any pressure at this point.

RICK NEWMAN: Hey, Ed, Rick Newman here. The emerging storyline here seems to be that, OK, we're probably not going to get anything by Election Day. But the Democrats are hoping Biden wins, and they're going to get their wish that they take control of the Senate. And if that happens, there's going to be a huge stimulus plan sometime early in '21, perhaps as big as that $3.4 trillion bill the House Democrats passed back in May. Do you buy that?

ED MILLS: Rick, it's been the question of the day as to kind of why we got the tweets that we got over the last 24 hours, the market reaction we got into the close, and then the rally today. I think investors that I have spoken to here at Raymond James have been mixed.

Some believe that this makes it much more likely that regardless of the outcome of the election, there is a deal to be had in the lame duck before the December 11th deadline to funding the government. Others said this is a clear signal from the market that they are now expecting a Democratic sweep. That would be the package that would be the largest.

However, it might have to wait until February or March to be fully implemented. My concern there with the warnings from Chairman Powell yesterday out of the Fed that, you know, you can't go too big at this point, is that would be a full year since we passed the CARES Act. And so what is the economic impact if we have to wait that long?

AKIKO FUJITA: Ed, jumping on Rick's point there, is there a case to be made that the economic data we've gotten has added to the urgency of this? I mean, you could argue yesterday, sure, we saw the market respond.

But it does feel like there is a sense of urgency on the Republican side to do something or to show they're doing something. How much of that has to do with the actual data that's come out and the realization that the economic recovery is not as strong as they anticipated?

ED MILLS: You know, it's a great question, but what I would push back on there is two things. One, the market has been really strong. And sometimes, for better or worse, Congress uses the Dow especially as an indicator as to kind of whether or not there is need for additional action from Congress. So the fact that it's been strong takes away from that pressure.

The other thing I hear is that a lot of members expected, when they left town in August without a deal, that they would hear a lot from constituents. When they came back in September, as I talked to folks in and around Capitol Hill, one thing that surprised me is how few members reported getting a lot of pressure to push this through.

So congressional Republicans especially in the Senate, a majority of them do not want to pass additional stimulus, anything above the $500 billion that they offered. They absolutely don't want to do a $2.2 trillion bill. They probably don't want to do the $1.6 trillion bill that the Trump administration has proposed.

So there really has not been that pressure on Congress that you would initially expect, if you look at the statements of the chairman of the Federal Reserve, who almost never suggests fiscal policy.

ANDY SERWER: Hey, Ed, you have a pretty cool job. On the other hand, I know you got to stay up and watch the vice presidential debate from 9:00 to 10:30 tonight. So you've got to dig deep a little bit sometimes. What are you looking for this evening? What should we be paying attention to?

ED MILLS: You know, I think there is a couple of things we're looking for tonight. People will kind of have plenty of comparisons on whether or not this is a preview of future presidential debates. Kamala Harris and Mike Pence might be future nominees for their parties.

I think it will be a question of whether or not we get back to what is a more normal debate after last week's debate. Is there an opportunity for Mike Pence to kind of change the narrative for the presidential campaign of President Trump?

And I think that we're kind of looking to see if there's any gas. Because one thing that we have not really seen is there's not a lot of undecided voters in a lot of the polls that are coming out. So to really change this, you have to convince people who've already made up their mind for one candidate or another to start switching sides.

You need some significant catalyst for this to be meaningful in a year where, kind of, once in a decade type of headlines seem to be happening on a daily basis.

RICK NEWMAN: Hey, Ed, you just mentioned Republican resistance to anything above $500 billion, or perhaps even $500 billion. Can you explain why Republicans are so resistant to more spending, especially since you would think it would benefit them since there is a Republican incumbent in the White House, they could lose the Senate.

I've had members of our audience ask me, this seems to be in Republicans' interest to get more stimulus passed now. Why are they so reluctant?

ED MILLS: So the reluctance comes from, I think, first and foremost, spending for state and local governments. There is a concern among congressional Republicans that it is not the job of the federal government to bail out state and local governments who might have not managed their finances as well as some others.

There is a resistance to another round of stimulus checks, especially if it goes to everyone with a tax ID number, versus only folks who have filed for taxes. A concern about dropping an immigration debate into a stimulus conversation just weeks before the election.

And probably the biggest thing that you hear from congressional Republicans is that there's hundreds of billions of dollars left over from the CARES Act that has not yet been spent. And so they would argue, there's been billions of dollars already appropriated. Why are we appropriating more before that is fully spent?

Democrats push back to that point and say the biggest pot of money that has not been distributed from the CARES Act is money controlled by the treasury secretary meant to assist medium and kind of mom and pop businesses, a number of things that is supposed to be a joint venture between the Fed and Treasury that Mnuchin seems to be dragging his feet on.

SEANA SMITH: Ed Mills of Raymond James, always great to have you on this show. We'll talk to you soon.

ED MILLS: Likewise, thank you. Great to see you.