Washington Insider -- Thursday

Administration Virus Responses Following the Interest Rate Cut

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

Focus Continues on RFS Waiver

With a March 9 deadline to respond to the 10th Circuit Court ruling that three small refinery exemptions (SREs) under the Renewable Fuel Standard (RFS) for the 2016 compliance year were to be reviewed, pressure continues on EPA from both biofuel backers and refiner interests.

Nine Republican senators sent a letter to EPA Tuesday calling on the agency follow through with their finalized the 2020 biofuel and 2021 biodiesel standards, which included EPA agreeing to adjust the Renewable Volume Obligations to account for 770 million gallons of SREs, even though they viewed that action is “imprudent and misguided.”

Meanwhile, staunch biofuel backer Sen. Chuck Grassley, R-Iowa, told reporters Tuesday that there were discussions going on within the administration on the matter. He said he has urged the administration to “follow the law” and the court ruling and to not appeal that decision. Further, he called on the administration to give it “nationwide application.”

In addition, 16 House members – including Senate Majority Leader Kevin McCarthy, R-Calif., and House Republican Conference Chair Liz Cheney, R-Wyo., – called on EPA to reconsider the court decision. Specifically, they called on EPA to “seek and extension and request an en banc hearing” so the full court can reconsider the matter. They also called on EPA to issue guidance that makes clear the ruling is not to be applied outside the 10th Circuit and that pending SREs for the 2019 compliance year within the 10th Circuit should be deferred and other SREs should be “rendered as soon as possible.”

EPA Administrator Andrew Wheeler told members of a House Appropriations subcommittee Wednesday that he hoped to issue EPA’s response “shortly” but did not say what that decision will be. “We are still working on that with our attorneys at EPA as well as the attorneys at the Department of Justice,” he said. “The decision has to be made by next week, so we will be announcing something shortly.” He also expressed a hope that the announcement would “quell” the RIN market.

Texas A&M Report Assesses MFP Efforts

Economists at the Agricultural and Food Policy Center, Department of Agricultural Economics, Texas A&M Univesity, released a report on the Market Facilitation Program (MFP) and its impact.

“While there was significant variability in county payment rates for MFP 2.0, most of that variability is easily explained by the underlying damage assessments and the distribution of planted acres in the respective counties,” the report said.

“And, despite the fact that the highest county payment rates were predominantly in counties with cotton production, almost 70% of the assistance under MFP 2.0 went to Midwestern states,” the report said. “While we find little validity to the argument of regional inequity, there certainly were disparities between neighboring counties.”

Further, the report said that the two MFP efforts thus far had a “greater than $41 billion impact on the broader rural economy.”

Washington Insider: Administration Virus Responses Following the Interest Rate Cut

There is considerable uncertainty about the “next step” in coronavirus responses now, Bloomberg says. It attributes the market strength on Wednesday to Tuesday’s election results and the market’s extreme volatility.

And, it calls the administration’s response to the virus outbreak and the damage it’s inflicting on global markets as “most notable for what hasn’t been done.” The report highlights the fact that the president has “so far balked at pursuing a major fiscal plan to counter the market turmoil stemming from the virus’s spread.”

It says that the administration appears “content to wait out the crisis,” even though it could emerge as a potential threat to the president’s re-election – which has been “staked squarely to the performance of the American economy.” His clearest calls have been directed at the Federal Reserve. “More easing and cutting!” he tweeted Tuesday after the central bank announced an emergency 50 basis point rate cut.

Yet Bloomberg says “concerns are growing in the business community” and industries may be looking for more than just monetary policy to cushion the blow. It cites David Kelly, chief global strategist at JPMorgan Asset Management, who said there’ll be calls on the government to act: “Even with this Fed action, there will likely be growing calls for fiscal action, particularly to provide direct support to businesses that may increasingly suffer from the public response to virus fears.”

Airline chief executives are scheduled to meet with Vice President Mike Pence at the White House on Wednesday and the U.S. Chamber of Commerce held a news conference with leaders from travel and retail industry groups. “I think the government would be extremely smart if they were to stimulate travel,” Roger Dow, president and chief executive officer of the U.S. Travel Association, said at the Chamber event in Washington.

Chamber president Tom Donohue said it would be good to support regional airlines, but added, “we don’t need any bailouts here.”

The Fed on Tuesday cut interest rates outside of its normal cycle of meetings for the first time since the financial crisis of 2008. “The coronavirus poses evolving risks to economic activity,” the central bank said in a statement.

The President and his advisers, though, “argue the economy isn’t under serious threat, that the government is capable of meeting challenges posed by the virus, and that an overreaction could make things worse.”

“The country’s in great shape. The market’s in great shape. I’m focused on this,” the president said Tuesday after a visit to the National Institutes of Health in Maryland.

Vice President Pence on Tuesday reiterated that view: “The priority is the health and safety of the American people. We believe the strength of the American economy will take care of itself.”

Larry Kudlow, a key White House adviser, asked if he saw an economic crisis developing ahead, said on Tuesday: “I don’t. I’ll be honest.”

Views on the stock market outlook remain decidedly mixed after the Fed cut fell flat. “The market was expecting a more coordinated and decisive response and not just one from the Fed,” said Solita Marcelli, deputy chief investment officer for the Americas at UBS Global Wealth Management.

Administration spokesmen have said they’ll propose a tax cut later this year as part of a re-election platform and on Tuesday the president called House Democrats to propose a “very simple one year payroll tax cut.” The tweet was part of the administration’s efforts to check how receptive Capitol Hill is to a new tax cut package, one administration official said.

However, Treasury Secretary Mnuchin later said the administration isn’t considering a payroll tax cut as part of its virus response. He added that the virus sell-off isn’t comparable to the financial crisis a decade ago. “We will get through this,” he told reporters Tuesday. Market swings are happening because “the markets struggle to assess new risks.”

The administration has loosely discussed targeted measures, like supporting companies to avoid furloughing workers and guaranteeing sick pay to encourage the ill to stay home, a person familiar with the matter said.

In addition, the President has pointed to other culprits for the slide in stocks. He first tried to talk up stocks as a buying opportunity several days ago, before blaming the media and Democrats for exaggerating the risk of the outbreak. He then pivoted back to his long-running complaint that interest rates are too high, publicly badgering the Fed for days before Tuesday’s emergency cut.

For now, the President should keep focusing on stopping the spread of the virus itself, said Joel Griffith, a research fellow at the Heritage Foundation, a conservative policy institute. “In that respect I think the Trump administration is on the right course,” Griffith said.

“We’ve got a fundamentally strong economy,” he said. “I’m very concerned that too many people are sensationalizing these events, and that might encourage counterproductive behaviors and needless economic consequences.”

So, we will see. Much depends on the perception that the government actions are effective and the outbreak is being controlled—and officials may find themselves forced to consider more direct actions, health officials say. Clearly, these are controversial issues that producers should watch closely as the debates continues, Washington Insider believes.

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