Washington Insider-- Friday
Fed Warning as Relief Package Fight Heats Up
Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.
China State Planner Keeps Low-Tariff TRQs on Grains, Cotton Steady
The tariff rate quotas (TRQs) for wheat, rice, corn and cotton for 2021 will be at the same levels as were in place for 2020 — 7.2 million metric tons (mmt) for corn, 9.636 mmt for wheat, 5.32 mmt for rice and 894,000 metric tons for cotton.
However, China has taken actions publicly for cotton to bring in more cotton than their announced 2020 TRQ levels, announcing a 400,000 metric ton import quota for processing.
USDA signaled after the release of its WASDE report Friday that their forecast of corn imports by China at 7 mmt reflected the announced TRQ level for corn even though export commitments for corn were at more than the TRQ level of 7.2 mmt.
The TRQs announced by China are on a calendar year while the WASDE forecasts are on a marketing-year basis.
But USDA in February, after the Phase One agreement was announced, indicated they would track export sales of commodities covered by the agreement. But the comment from the Office of the Chief Economist indicating that there had not been a policy announcement from China relative to increasing the TRQ for corn indicates the agency does not appear to be sticking with their February stance that export sales would be a key factor relative to USDA's forecasts of China's purchases.
Reuters reported that while the TRQs would not be changed, they quoted a source as indicating that there could be a “special” permit for extra imports, a situation which would match what China has done on cotton.
CFAP 2 Details Likely To Come Soon
The Office of Management and Budget (OMB) finished its review of the final plan from USDA for another Coronavirus Food Assistance Program (CFAP) effort Wednesday (September 16).
And President Donald Trump announced the aid, totaling around $13 billion, in Wisconsin on Thursday night. That should mean details of the plan will come Friday from USDA.
The CFAP 2 effort is expected to focus on addressing impacts to the sector that have been seen since April 15, the date that the initial CFAP effort targeted.
Payouts under the initial CFAP effort have totaled just under $10 billion, shy of the $16 billion the agency targeted for the effort and signup for the initial effort closed September 11.
The Hill is reporting this week that Fed Chair Jerome Powell warned that a “lack of further fiscal support from Congress could scar and damage the U.S. economy.” During a Wednesday press conference, Powell expressed optimism that Democrats and Republicans “would find a path forward on another coronavirus relief bill despite a weeks-long stalemate between negotiators.”
“There does seem to be an appetite on the part of all the relevant players to doing something. The question is how much and when,” Powell said.
But he added that the Fed's improving outlook for the U.S. economy depends on lawmakers and the White House bridging deep divides over the scale and scope of another package.
“If there's no follow-up on that, if there isn't additional support and there isn't a job for some of those people who are from industries where it's going to be very hard to find new work,” Powell said, “that will start to show up in economic activity. It'll also show up in things like evictions and foreclosures and things that will scar and damage the economy.”
Powell's latest plea for more fiscal support came after the Fed announced in its last policy meeting before the November election that it would hold rates steady near zero percent. Officials do not expect the bank to hike rates again until 2022 at the absolute earliest, but 13 of the 17 Fed board members and reserve bank presidents do not expect a rate hike through the end of 2023, according to projections released Wednesday.
Fed officials also upgraded their forecasts for the economy after the unemployment rate declined to a “surprisingly strong 8.4% in August.” They now expect the unemployment rate to decline to a median of 7.6% by the end of the year, well below the 9.3% median projected in June.
Powell cautioned that those projections were based on the assumption that Congress would approve another fiscal aid package to extend enhanced unemployment benefits that expired on July 31, boost struggling state and local governments with further aid, and provide financial support to avoid evictions.
That bet may not be safe given the persistent impasse since early August between Democrats and Republicans over another fiscal package, The Hill said.
Sen. John Thune, R-S.D., a member of GOP leadership, said Thursday that a deal in the range of $1.5 trillion — a middle ground between current Democratic and Republican offers — would likely lead to “heartburn” among Republicans on Capitol Hill.
“If the number gets too high, anything that got passed in the Senate will be passed mostly with Democrat votes and a handful of Republicans,” he told reporters. “So it's going to have to stay in a sort of realistic range if we want to maximize, optimize the number of Republican senators that will vote for it.”
Thune's comments came after President Trump encouraged Republicans in a Wednesday tweet to aim for a larger package, a request quickly touted by Speaker Nancy Pelosi D-Calif., and Senate Minority Leader Charles Schumer, D-N.Y.
“We are encouraged that after months of the Senate Republicans insisting on shortchanging the massive needs of the American people, President Trump is now calling on Republicans to 'go for the much higher numbers' in the next coronavirus relief package,” Pelosi and Schumer said in a joint statement after Trump's tweet.
The deadlock has persisted despite signs that the recovery from the coronavirus recession is slowing. Roughly 11.5 million Americans have not yet found work after losing their jobs earlier this year. The number of new jobs added by the U.S. economy has slowed for two consecutive months.
A crucial step to stem those declines, Powell said, is for Congress and the White House to reach an agreement on COVID-19 relief, though he did not specify a preferred price tag for such a deal or what provisions it should include. “I think the real question is when and how much, what will be the contents,” Powell said of a deal to speed up the recovery.
“And, you know, no one has any certainty around that. But broadly speaking, if we don't get that, then there would certainly be downside risks,” he added.
Meanwhile, the administration pulled $700 million from the CDC to fund the Operation Warp Speed effort to develop drugs and vaccines, according to people familiar with the matter. The money came from funds Congress appropriated to the CDC in stimulus legislation earlier this year, according to staff members who asked not to be named because the matter isn't public.
So, we will see. The fight over the next virus subsidy is real, bitter and certainly will be difficult to resolve in spite of administration intercession — a battle producers should watch as it intensifies, Washington Insider believes.
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