Washington Insider -- Friday

By DTN's Washington Insider

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

Government Shutdown Appears Averted on Deal Over FY 2020 Spending

Lawmakers from the House and Senate reached a bipartisan deal to fund the government beyond December 20 when the current stopgap spending plan runs out. The agreement was announced by House Appropriations Chair Nita Lowey, D-N.Y.

Lowey and her Republican appropriations counterparts and Senate appropriators made the announcement that they have agreed on all 12 spending bills for Fiscal Year (FY) 2020.

Details of the deal, however, are not yet available even though lawmakers want to release it as soon as possible, Lowey said.

Keys will be what lawmakers were able to work out on the border wall and on the Trump administration’s Title X policy blocking federal funds to groups that refer patients for abortions. Bloomberg reported the deal includes $1.375 billion for the border wall.

As for the White House, Senate Appropriations Chair Richard Shelby, R-Ala., said, “They’ve been involved. But we have to make the decisions.”

Expectations are the House will vote on the plans Tuesday, December 17.

---

House Passes Ag Labor Bill

The House voted 260-165 Wednesday to send to the Senate legislation that would allow undocumented farmworkers to earn legal status and streamline the H-2A guest worker program.

The measure faces an uphill battle in the Senate because of the provisions for undocumented agricultural workers and their families. Thirty-four Republicans — nine more than the 25 who cosponsored the bill (HR 5038) — joined 226 Democrats in passing the measure.

Of note, the passage count was not enough to override any presidential veto should the legislation, however unlikely, get to President Trump's desk.

Plus the American Farm Bureau Federation came out against the legislation, expressing disappointment that efforts to improve the legislation via amendments were blocked.

---

Washington Insider: Fed and the US Economic Outlook

While there is more angst and anxiety around Washington these days than most of us can comprehend involving trade policy, national politics and who knows what else, one sort of constant remains: the Fed’s tiff with the president. Chairman Jerome Powell “still isn’t heeding President Trump’s demands to slash interest rates,” the Washington Post is reporting this week.

However, the report has a twist of its own — the Post thinks “the central bank chief still delivered unequivocal good news for President Trump’s reelection hopes.”

Powell, addressing reporters after the Fed’s final meeting of a turbulent decade, predicted smoother sailing next year. He said monetary policymakers “expect moderate growth to continue,” at a slowed but still healthy 2% pace.

And he took some credit for helping navigate head winds from the administration’s trade war and choppiness abroad, saying the Fed’s three interest rate cuts over the summer and into the fall, “kept the economy on track.”

Indeed, the Fed’s official statement—accompanying the announcement it is holding the benchmark interest rate steady between 1.5% and 1.75% — dropped its mention of “uncertainties” facing the economic outlook, the Post noted.

Actually, Powell left the door open to changing interest rates in 2020, but stressed “there is a high bar for moving rates up or down.” He emphasized that the Fed was going to do what we think is the right thing for the economy and if there is a material reassessment of our outlook, “we would respond accordingly,” he said.

Powell’s presentation marked a “heel turn” from earlier this year, the Post said. Stocks tanked in July after Powell described the Fed’s first interest rate cut in a decade as a “mid-cycle adjustment,” because investors interpreted the remark as a signal the relief monetary policymakers were providing was only temporary.

Now, however, “the cuts look much more permanent,” Grant Thornton chief economist Diane Swonk wrote. The vote to hold rates unchanged was unanimous, the first time that all agreed on what the Fed should be doing since May.

Also 13 of the 17 members of the Fed policy setting officials indicated they expect the borrowing rate to remain untouched next year, while four projected one hike. As recently as September, nine of the policymakers projected at least one rate hike next year.

Investors had largely priced in the Fed’s decision to hold rates steady and stocks rallied modestly on the chairman’s comments. Major indexes snapped a two-day losing streak, with the S&P 500 closing up 0.29% and the Dow Jones industrial average climbing 0.11% on the day.

“Markets liked Mr. Powell's assertion that he would want to see a ‘significant’ and ‘persistent’ increase in inflation before he would want to raise rates and he again drew attention to the undershoot to the target in recent years,” Pantheon Macroeconomics chief economist Ian Sheperdson said, “Mr. Powell's view is not shared by all his colleagues, given that most of them expect rates to rise slightly over the next three years while core inflation is expected to be little changed. But markets put much more weight on the views of the Chair; that's probably the right approach.”

Still the Post observed that “if Powell is landing on a position that benefits Trump, it’s no indication the president and his handpicked Fed chair are simpatico.” The President has treated Powell like a punching bag, attacking him relentlessly for leading the Fed to raise rates last year and not cutting them as far or as fast as the president would have liked in 2019.

Now, “the pressure is largely off.” While the administration’s trade war continues to inflict harm “the Fed’s actions are widely credited with offsetting most of it, at least for the United States,” the Post said.

Still, the president hasn’t extended an olive branch, although his top economic adviser, Larry Kudlow, said at a recent conference that the Fed’s role in the economy has been overstated. He thinks that the chairman may be less of a central figure in 2020, able to deliver “needed rate cuts without undermining investor confidence in an independent central bank.”

And Powell has garnered improved marks from Fed watchers, including former central bank officials, who criticized his communications strategy and execution as uneven. At his most-recent news conference, Powell “projected more confidence than at any presser before,” former Dallas Fed President Richard Fisher told the Wall Street Journal. “He is visibly in command of the ship.”

So, we will see. There seems to be broad agreement with Post view of a stronger Fed just now, but potential turbulence could lie ahead. It will be important for producers to watch closely the coming decisions about new tariffs on Chinese goods and on the FY2020 spending bills other issues over the coming weeks, Washington Insider believes.

---

Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products and on the News and Analysis Menu of DTN’s Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the US Ag Policy, US Farm Bill and DTN Ag News sections on their News Homepage.

If you have questions for DTN Washington Insider, please email edit@dtn.com

(GH/CZ)

Copyright 2019 DTN/The Progressive Farmer. All rights reserved.