Washington Insider-- Monday

Fed Goes All Out, Approaches Red Lines

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

USDA Clarifies What Determines Price Risk on Unsold Inventory

The Farm Service Agency (FSA) has issued some information clarifying what are eligible contracts that leave price risk open for producers under the Coronavirus Food Assistance Program (CFAP) and what tools constitute removing price risk.

Those deemed contracts that leave open price risk include: basis contracts, basis fixed contracts, delayed price contracts, deferred price contracts, and contracts where no price is established.

Those where price risk is removed (and are considered ineligible contracts) include: cash contracts, fixed price contract, forward price contract, cash forward contract, minimum price contract, hedge to arrive contract, window contract, option contract, futures fixed contract and a futures contract.

The above list applies to contracts entered into on or before January 15.

USDA’s CFAP handbook provides several examples of forward contracts that are eligible, but do not provide the breadth of examples the agency considers as eligible or ineligible contracts.


Updated OSHA Guidance For Meat Plants

The Occupational Safety and Health Administration (OSHA) last week issued an updated guidance memo relative to reporting of COVID-19 cases.

The agency said COVID-19 can be a “recordable illness” if the worker infection was “as a result of performing their work-related duties,” if the following apply: The case is a confirmed case of COVID-19, as defined by the Centers for Disease Control and Prevention (CDC); the case is work-related as defined by law; and the case involves one or more of the general recording criteria set forth by law.

The agency also noted that it is exercising “enforcement discretion” relative to the situation, a reference made more than once in the updated guidance.

“Recording a COVID-19 illness does not, of itself, mean that the employer has violated any OSHA standard,” the agency stated. The updated guidance is sparking concern within the meat industry about the impact it could have, but it is not clear what specific impacts to things like insurance.


Washington Insider: Fed Goes All Out, Approaches Red Lines

The New York Times reported this week that Jerome Powell, chair of the Federal Reserve, told a University group last week that “central bankers had seen the need to use their tools to their fullest extent” as coronavirus lockdowns shuttered economies around the globe and caused United States unemployment to soar.

“We felt called to do what we could,” Powell commented Friday during a Princeton University webinar.

His comments emphasized that the Fed “crossed a lot of red lines that had not been crossed before,” and added that he was comfortable with what the Fed had done given “this is that situation in which you do that and you figure it out afterward.”

Powell called attention to the variety of actions the Fed has taken to support the economy: cutting interest rates to near-zero, rolling out unlimited bond purchases to soothe markets and initiating emergency lending programs to keep credit flowing to businesses and state governments.

He also noted that several of those efforts “tiptoe into untested territory” for the central bank, including programs that lend to medium-sized businesses, buy corporate bonds and purchase debt from states and large cities. “We work very hard to explain ourselves to the general public,” he said, explaining that the Fed is disclosing information on its lending efforts and discussing them regularly with lawmakers.

And, he pointed out that “the programs come at a time of dire need.” Economists are bracing for a deep plunge in economic output in the second quarter -- from April through June -- and most predict only a gradual recovery over the remainder of the year. It could be months or years before output returns to its pre-crisis level, and the unemployment rate falls to the 50-year lows that prevailed before the coronavirus lockdowns precipitated a wave of layoffs, NYT said.

More than 40 million people, about one of every four American workers, have filed for unemployment benefits since mid-March, based on recent data. A report next Friday is expected to show that the unemployment rate jumped to 19.5% in May based on the median estimate in a Bloomberg survey of economists.

Powell also noted that the “burdens” of job losses are falling on those least able to bear them, in lower-paid service work, exacerbating economic inequalities.

“Those are the people being laid off, who have the least financial resources,” he said. “It’s falling on women to an extraordinary degree,” and “there’s tremendous inequality” in how the pandemic is affecting the population.

He also voiced concern that if a second round of virus infections hits America, it could lead to a more delayed economic rebound.

“A second wave would really undermine public confidence and might make for a significantly longer and weaker recovery,” he said, after explaining that “a full recovery of the economy will really depend on people being confident that it’s safe to go out.”

States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, “it’s still a good idea to limit trips outside and your interaction with other people.”

While Powell stressed the Fed’s willingness to act when it comes to emergency lending, he reiterated that the central bank is not looking to cut interest rates into negative territory, something central banks abroad have done in an effort to stimulate their economies.

Powell has frequently warned that the United States is experiencing an economic hit “without modern precedent,” one that could permanently damage the economy if Congress and the White House do not provide sufficient financial support.

For example, in mid-May he warned as discussions of additional rescue measures ran aground as Democrats proposed sweeping new programs and Republicans voiced concerns over the swelling federal budget deficit. “There is a sense, a growing sense I think, that the recovery will come more slowly than we would like. “While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks.”

So, we will see. Given all the uncertainties that now abound, the hoped-for recovery likely is at least as fragile as the Fed believes it to be and the national debate over emergency economic policies should be watched closely as the season progresses, Washington Insider believes.

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