Washington Insider -- Tuesday

The President and the Fed

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

Midwest Lawmakers Press Energy Regulator for Action on Propane

Midwest lawmakers are pressing the Federal Energy Regulatory Commission (FERC) to address issues with propane supply problems in the region, which are impacting producers as they seek to harvest this year’s corn crop.

“Farmers are calling our offices looking for answers about what can be done,” said a group of House lawmakers led by House Ag Committee Chairman Collin Peterson, D-Minn. “Those who are lucky enough to have crops to harvest this year are now struggling with drying a wet corn crop.” Wet corn put into storage can start to spoil in as little as three days, the lawmakers pointed out.

The lawmakers noted that trucks have been running to Kansas and Texas to bring additional supplies back to the Midwest, “and we appreciate efforts taken by several state governors and the Federal Motor Carrier Safety Administration to assist companies in this effort.”

Iowa Republican Sens. Chuck Grassley and Joni Ernst also penned a letter to FERC Chairman Neil Chatterjee, asking the regulator to address the situation. “We understand that the nationwide supply of propane is adequate, but it is not in Iowa,” the letter said. Those with crops still standing in fields face issues, the letter said, along with livestock and poultry producers who are “concerned about supply with the winter months ahead,” with their offices receiving “numerous” calls.

“As farmers continue to face obstacles with the trade disputes and late harvest this year, the cold weather and propane issue compounds frustration and financial struggles,” the Iowa lawmakers said.

US-China Trade Talks Labeled ‘Constructive’

U.S. and Chinese trade negotiators held “constructive discussions” in a phone call on Saturday to address each side’s core concerns of Phase One of the trade deal.

China’s Vice Premier Liu He spoke with Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer, according to the Chinese Commerce Ministry. The call was held at the request of the U.S. negotiators, and the two sides agreed to remain in close communication, it said in a statement.

President Donald Trump had not yet agreed to remove any tariffs as part of a deal, and the size of China's commitment to purchase U.S. farm products was not yet clear, Commerce Secretary Wilbur Ross said on Friday in an interview on Fox Business Network.

China's reluctance to commit to a specific amount of farm purchases remains a sticking point in the talks, as is U.S. reluctance to roll back tariffs.

Washington Insider: The President and the Fed

It seems like a strange world when a presidential meeting with his Fed chair attracts significant media attention but the press is focusing pretty heavily on the recent session President Donald Trump held with Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin to discuss the economy.

For example, Bloomberg noted that it was the second face-to-face sit-down this year “amid relentless White House criticism of the U.S. central bank.”

Powell’s comments “were consistent with his remarks at congressional hearings last week,” the Fed told the press after the meeting adding that the gathering was at the president’s invitation.

Bloomberg emphasized that the meeting came amid a steady stream of criticism of the Fed as the president “makes his economic record the center of his bid for re-election next year.” His attacks included an August tweet asking “Who is our bigger enemy, Jay Powell or Chairman Xi?" The report said the comments “shattered a decades-long White House tradition of avoiding public comment on monetary policy out of respect for the Fed’s independence.”

In the recent meeting, Powell “did not discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming information that bears on the outlook for the economy,” the Fed said.

The President subsequently tweeted that they’d had a “very good & cordial meeting” and had discussed a range of issues including “interest rates, negative interest, low inflation, easing, dollar strength & its effect on manufacturing, trade with China, EU & others, etc.”

The dollar dropped to a session low amid gains in the euro after press reports that that negative interest rates had been among their topics of conversation.

Powell last week called the U.S. economy a “star” performer and voiced solid confidence that its record expansion will stay on track. He and other Fed officials have consistently said that European or Japan-style negative interest rates would not be appropriate in the U.S.

Still, the chairman’s remarks on the economy reinforced a sense that officials judge they have done enough to keep the economy on track after three rate cuts this year and that monetary policy is now on a prolonged hold as long as the outlook remains favorable.

Trump has publicly raged against Powell and the Fed for many months, complaining about the rate increases during 2018 and continuing to pound the central bank this year even as it has cut rates to keep a record U.S. expansion on track — as the president “seeks to deflect blame for slowing growth that many have pinned on his trade war with China,” Bloomberg said.

With less than a year until the 2020 vote, the U.S. economy has been generally holding up this year on resilient consumption. GDP increased at a 1.9% annualized rate in the third quarter, though that was down from 2% in the second quarter and 3.1% in the opening three months of the year.

Powell had dinner with Trump in February and the two have spoken since by telephone. Meetings between a president and Fed chief are rare but not unprecedented.

Meetings this year, however, have come amid repeated public criticism by Trump that culminated late last year with press reports in December that the president had discussed firing the man he picked to lead the central bank.

That direct threat to Fed independence — an article of faith among investors in U.S. assets, contributed to already steep stock-market losses that turned the month into the worst December for U.S. equities since the Great Depression.

While the President has been critical of the Fed, he was responsible for choosing candidates for its policy-setting committee including four of the five current members. However, two vacancies remain open and he announced his intention to nominate at least somewhat controversial people for those jobs — most recently in July when he named Trump supporter Judy Shelton and St. Louis Fed research chief Christopher Waller. However, he has yet to actually nominate either.

So, we will see. While the Fed appears to believe that several sectors of the economy are slowing, it also appears determined to avoid any significant exposure to inflationary policies or to weaken its political independence — policies investors widely applaud. This is a high stakes debate especially in these extremely politicized times and involves numerous battles producers should watch closely as they emerge, Washington Insider believes.

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