Hopes of Congress and the White House reaching a deal on further economic stimulus have faded, as an unexpectedly steep drop in the jobless rate has stifled appetite among Republicans and the White House for a compromise on new coronavirus relief. Haggling over fresh federal support for the US economy will resume when lawmakers return to Washington after their summer break this week, as the impact of $3tn in relief funds approved at the start of the pandemic fades. Economists and analysts expected an agreement to be struck by the end of the month to plough about $1.5tn in new government money into the economy, which could be pivotal to sustaining the US rebound. But prospects for a deal have diminished.

The strength of equity markets throughout August, as well as Friday’s data showing joblessness dropping to 8-4 per cent, below the unemployment peak during the Great Recession, has removed some of the pressure on Republicans on Capitol Hill, and Trump administration officials, to strike a  deal. “In the Cares Act [the March stimulus bill] we got to a deal because there was a crisis mentality on both sides, when the market was crashing and the economy was shutting down. The crisis mentality is just not there right now on the Republican side,” said Ben Koltun, senior research analyst at Beacon Policy Advisors in Washington.

After the release of the unemployment data on Friday, Larry Kudlow, President Donald Trump’s top economic adviser, told Bloomberg TV that the US could “absolutely live with” no deal on new stimulus. “Right now the economy is on a self-sustaining recovery path in my judgment and will continue along those lines, and will continue to surprise on the upside,” he said.

Democrats say the US economy needs an extra $3tn in fiscal stimulus to shield households and businesses from the impact of mass unemployment and income loss, and warn failure to strike a deal could be devastating. They have also pointed out that the US is experiencing a “K-shaped” recovery, with wealthier Americans bouncing back quickly to pre-pandemic levels of activity, while low-income families face hunger, joblessness and housing uncertainty.

Even Federal Reserve officials have called for a deal to be reached on new stimulus, saying it would provide vital support as the impact of the Covid-19 recession lingers. “It really does behove us as a country, as a very wealthy country, to use our great powers to support people who did nothing wrong,” Jay Powell, the Fed chair, said in an interview with NPR that will be aired on Monday.