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.

Concern Rising Within USDA on Slow Farmer Safety Net Signup for 2019 Crops

USDA's Farm Service Agency is about to deploy a mailing campaign to remind farmers they need to enroll for 2019-crop safety net programs -- Ag Risk Coverage (ARC) and Price Loss Coverage (PLC).

There are 2.3 million farms with base acres, according to FSA, and typically around 1.7 million farms enroll the programs on an annual basis. As of Jan. 27, only 327,408 farms have enrolled, FSA detailed in a notice to state and county offices outlining steps to be taken to make sure that producers meet the March 16 deadline to enroll for 2019.

While county FSA offices have used a "register" when it is not possible for a producer to meet a deadline for enrollment in a program, FSA said the register must not be used "unless a producer is scheduled for an appointment or requests an appointment and the County Office does not have capability to service the producer by March 16, 2020."

FSA said that appointments placed on a register "must be completed as soon as possible after the March 16, 2020, deadline."

Use of the register is not considered an extension of the enrollment deadline. If a valid 2019 election and enrollment on a farm is not filed by March 16, (including enrollment registers), FSA stated, "the farm will remain with default program elections and no payments will be issued for the 2019 crop year."

It is clear that farmers are waiting to gather as much information price-wise or market-wise before they make their choice on whether to go with ARC or PLC for the 2019 crop year.

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USMCA Signed By Trump With Attention Shifting to Canada

President Donald Trump signed the implementing legislation for the U.S.-Mexico-Canada Agreement (USMCA) Wednesday at a White House ceremony.

The remaining step in the ratification process is now with Canada's parliament, which is expected to approve the deal though timing remains uncertain.

Once ratification is complete, then the three countries have to embark on the process of making sure that regulations/laws reflect provisions of the updated agreement.

After that process is completed, the countries are to notify each other via letters, which will start the implementation process.

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Washington Insider: Fed Rate Unchanged

The media reported on Thursday that the Federal Reserve left interest rates unchanged at this week's first meeting of 2020. For example, the New York Times reported that the Fed upheld its "patient stance" after an active and often tumultuous 2019.

Jerome Powell, the Fed chair, walked a careful line in his post-meeting news conference, painting a picture of a solid economy that is fueled by strong job gains and a confident consumer willing to spend. But he noted global risks that remain, including the outbreak of a deadly new coronavirus. He also said that price gains remain "surprisingly soft."

Fed officials, whose job is to maintain both full employment and stable inflation, think the current economic situation merits a wait-and-see approach. The federal funds rate is currently set in a 1.5% to 1.75% range and the decision to keep it steady was unanimous.

Powell is seen as signaling that the central bank does not plan to move policy in either direction unless something shifts "fundamentally" -- and that it does not expect to cut interest rates as long as the economy shapes up as expected, the Times said.

The Fed's decision is unlikely to sit well with President Donald Trump who has been pushing it to slash rates further. In a tweet on Tuesday, the president said "the Fed should get smart & lower the Rate," arguing that comparatively high rates in the United States are putting the country at a disadvantage.

The report noted that the central bank has been emphasizing recently that it does not answer to the White House and that its policy goals come from the Congress. Still, it faces a "complicated backdrop" when it comes to achieving those targets, NYT said.

Expectations of a global growth turnaround have been climbing, helped along by an initial trade deal between the United States and China that forestalls additional tariffs between the two large economies.

But those positive signs could be dampened by the new coronavirus, which is forcing quarantines in China where it is shuttering multinational operations and causing nervousness around the world.

Powell pointed to that potential economic threat at his news conference, though he said it was too early to know what its macroeconomic effect would be. "There is likely to be some disruption to activity in China and perhaps globally," he said, adding that the Fed was "very carefully monitoring the situation."

The chair also noted other persistent weak spots, including soft business investment and exports, which he attributed to "sluggish growth abroad and trade developments." Manufacturing is also continuing to see a fall off, though Powell suggested that weakness might be bottoming out. "We need to be a little bit patient about the effect on the economy."

Still, Powell struck an optimistic tone about the U.S. economy overall, pointing out that employers are still hiring and unemployment continues to hover near a half-century low. He also cautioned about inflation, which continues to fall short of the Fed's 2% target. It has not hit that rate of change sustainably since the central bank formally adopted the goal in 2012.

The annual price increase, as measured by the Fed, came in at just 1.5% in November. While sluggish price gains might sound positive, the Fed sees steady, gradual increases as better for the economy. Weak inflation leaves officials with less room to cut rates in a downturn. And if consumers begin to expect slower increases, that outlook could become self-fulfilling, dragging inflation down further.

Fed policymakers do not expect it to eclipse 2% this year, based on their most recent set of economic projections. "In theory, inflation should be moving up," Powell added, given that the United States economy is in its 11th year of an expansion and unemployment is very low, at 3.5%.

Some analysts interpreted Powell's wary tone as a sign that the Fed was still oriented more toward cutting rates than raising them.

In a purely technical tweak, the central bank did nudge up the interest rates it pays on excess reserves -- bank deposits stashed at the Fed. The move was meant to keep the Fed funds rate trading within its target range.

It also affirmed that it will continue purchasing Treasury bills "at least into" the second quarter of 2020, and said it would continue to conduct operations in the repo market "through April 2020 to ensure that the supply of reserves remains ample" even in stressful periods.

The Fed has repeatedly said these interventions are not the type of mass bond-buying programs the central bank used to prop up the economy during and after the Great Recession. While those programs, known as quantitative easing, were meant to bolster the economy, the new interventions have been structured differently and are simply meant to fix a market-plumbing problem.

Investors have turned a skeptical eye on that claim, and equity analysts regularly argue that the purchases are pushing up stock prices, as markets take a cue from the Fed to buy.

So, we will see. It appears that the Fed will continue to tout its independence and that the president likely will continue his criticism. The Fed also seems prepared to take stronger action if "fundamentals" change, policies that producers should watch closely if they emerge, Washington Insider believes.

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