Washington Insider-- Wednesday

Fed Increases Push For Coronavirus Relief

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

Small Refiner Exemptions from RFS Requirements Remains in the News

USDA Secretary Sonny Perdue in Illinois Monday said that there are “no plans” to use the Commodity Credit Corporation (CCC) to make payments to refiners that are denied small refiner exemptions (SREs) under the Renewable Fuel Standard (RFS).

“We don't think that qualifies under Charter 5 of the Commodity Credit Corporation Act, and we've informed them of that,” Perdue remarked. “So we'll have to see what happens.”

Perdue said President Trump is trying to be fair to both sides on the issue of small refinery exemptions. “He thinks that denying those waivers and complying with the RINs (Renewable Identification Numbers), and that, has hurt some of the small, independents (refiners). That may be the case, but if they need to get that, then they need to find another way to do that.”

Meanwhile, Reuters reported, citing two sources, that the Trump administration has dropped a plan to use CCC authority to make payments to refiners denied SRE requests. The administration had been considering paying some $300 million to refiners and tap the CCC authority to do so. But after outcry from Midwest lawmakers and even from refiners, the administration has shelved the plan, according to the report.

Late Tuesday, the House of Representatives also passed a short-term funding bill for the federal government that would prevent CCC funds from being used for oil refiners.

EPA Still Shows Pending Gap-Year SRE Requests, Slight Uptick For 2019, 2020

The level of small refinery exemptions (SREs) still shown as being pending at EPA has declined dramatically, with the agency data now showing 17 remain pending for the 2011-2018 compliance years as of September 17.

There are two each pending for the 2011, 2012 and 2018 compliance years, three each for 2013 and 2015, four for 2014 and one for the 2016 compliance year.

The big reduction is due to EPA announcing they would deny the requests that they had received recommendations from the Department of Energy on. But that did not cover all of the pending gap-year requests.

As for the 2019 and 2020 compliance years, EPA data now shows 33 SREs pending for the two years combined, an increase from August data showing there were 31 SREs pending for the 2019 and 2020 compliance years.

Washington Insider: Fed Increases Push For Coronavirus Relief

The Hill is reporting that Fed chair Jerome Powell will offer testimony this week in what will likely be his last chance to try to push Congress toward another coronavirus relief bill before Election Day.

Bloomberg also is reporting that Powell said the U.S. economy “has a long way to go before fully recovering from the coronavirus pandemic and will need further support. The path forward will depend on keeping the virus under control and on policy actions taken at all levels of government.” He appeared before the House Financial Services Committee yesterday.

While a recovery is underway, “both employment and overall economic activity, however, remain well below their pre-pandemic levels, and the path ahead continues to be highly uncertain,” he said.

U.S. Treasury Secretary Steven Mnuchin also appeared, Bloomberg said and that he and the White House “continue to seek an agreement with both parties in Congress” on another fiscal relief package.

The Secretary said that “the President and I remain committed to providing support for American workers and businesses,” he said in a release. “I believe a targeted package is still needed, and the administration is ready to reach a bipartisan agreement.”

The hearing with key officials is a quarterly exercise mandated by the Cares Act passed by Congress in March which appropriated about $2 trillion to help speed the U.S. recovery. The pair faced questions about their use of the Act's funds and about what else should still be done.

However, Bloomberg also noted that prospects for another round of fiscal support have dimmed somewhat amid spiraling partisan tension over the battle to replace Supreme Court Justice Ruth Bader Ginsburg, with just 42 days remaining before the U.S. election.

As expected, Powell and Mnuchin fielded numerous questions about the troubled Main Street Lending Program, a $600 billion Fed facility backed by Treasury funds aimed at providing credit to small-and mid-sized companies, Bloomberg said. It has so far only purchased $1.5 billion in loans.

The two officials diverged on the advisability of lowering the minimum loan size for the program with Mnuchin embracing that potential while Powell said smaller loans would require a brand new approach and would be more appropriately managed through the Paycheck Protection Program, which extended forgivable loans to small firms.

On the question of whether the Main Street program was taking enough risk, the Treasury chief said he expected the Main Street backstop would take some losses. He didn't speak to reports that the Treasury had advised banks to target zero losses on the loans.

Mnuchin also made clear he's eager to reallocate funds initially appropriated under the Cares Act to act as a buffer for Main Street and other emergency lending programs that may no longer be needed.

“We would like to spend that money on other areas of the economy that could be better served,” Mnuchin said. “Unfortunately, we do need Congressional authority to use it in other areas.”

He also wrote that investors should “prepare for the likelihood Congress won't have the time or the will to pass more fiscal stimulus before the end of the year — and for an even more contested election in the wake of the death of Supreme Court Justice Ruth Bader Ginsburg.

The Fed's Federal Reserve Bank of Dallas President Robert Kaplan, who dissented at last week's policy meeting, told The Hill that he doesn't want to commit the U.S. central bank to too much monetary stimulus once the economy has recovered from the coronavirus pandemic.

Separately, Federal Reserve Bank of St. Louis President James Bullard said that the U.S. economy has enough momentum to continue its recovery from the coronavirus slump even if Congress fails to pass additional taxpayer support. “I don't think there is as much of an imperative about a new fiscal package as there might have been” in July or August, Bullard said. “It seems like, at least in some broad macroeconomic type of calculation, we have enough resources to cover this.”

In addition, there is criticism of the Fed's Main Street Lending Program. Bharat Ramamurti, a member of the congressional oversight commission for the coronavirus response, has called the Main Street Lending Program “a failure,” citing the reported reluctance of banks to furnish loans to struggling companies eligible for the facility.

And Sen. Pat Toomey, R-Pa., a member of that commission and the Senate Banking Committee, where Powell will appear Thursday, has called on the Fed to close down programs for purchasing corporate bonds amid a rapid recovery in financial markets.

So, we will see. In spite of the widening view that the crisis has passed efforts to move the Congress to offer additional assistance can be expected to continue and possibly to intensify — fights producers should watch closely as they emerge Washington Insider believes.

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