Washington Insider-- Thursday

DTN's Washington Insider

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

US Blocks Palm Oil From a Second Malaysia Plantation Due to Human Rights Abuses

The U.S. Customs and Border Patrol (CBP) agency has issued another withhold release order relative to imports of Malaysian palm oil. The Dec. 28 order covers palm oil and palm oil products produced by the Sime Darby Plantation Berhad, due to findings of forced labor abuses.

Sime Darby claims to produce 15% of Malaysia's palm oil, CBP said.

"Palm oil is an ingredient in a lot of products that American consumers buy and use. And I think it's important for manufacturers and importers to be aware of where they're at higher risk of forced labor, and to demand that their suppliers are adhering to protecting human rights of their workers," said Ana Hinojosa, executive director of CBP's Trade Remedy Law Enforcement Directorate.

CBP in September issued a withhold release order for imports of palm oil and palm oil products from FGV Holdings Berhad and its subsidiaries.

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Dietary Guidelines Flat on Consuming Sugars, Alcohol

New Dietary Guidelines for Americans, 2020-2025, was released by USDA and the Department of Health and Human Services (HHS) Tuesday. The guidelines now include recommended dietary patterns for infants and toddlers.

The agencies said the new guidelines were "informed by the scientific report developed by the Dietary Guidelines Advisory Committee" along with public input and that from other government agencies. The recommendations "look similar" to prior guidelines, the agencies noted, and despite a general recommendation that adults limit added sugar and alcoholic beverage intake, the guidelines sidestepped making any specifics on those two items.

The agencies said evidence presented to the dietary review committee lacked "a preponderance of evidence" that would support specific numbers on alcohol or added sugar, "as required by law."

As for red meat and processed foods, the guidelines also don't delve significantly into those areas. They do recommend replacing processed or high-fat meats with seafood or beans, peas and lentils to meet protein recommendations. The majority of meat and poultry a person consumes should be fresh, frozen or canned, and in lean forms, according to the guidelines. They suggest items like chicken breast or ground turkey, versus processed meats like ham or other deli meat.

The U.S. Cattlemen's Association tweeted that the guidelines gave scant mention of beef. "In the 164-page 2020 Dietary Guidelines for Americans, 'Beef' is mentioned only five times; 'Meat' is mentioned 87 times; 'Protein' can be found 166 times."

But the National Cattlemen's Beef Association (NCBA) declared the new guidelines recognize the role that lean beef can play in a healthy diet. "Beef is one of Americans' favorite foods, and science consistently shows lean beef can be the cornerstone in a variety of healthy diets," said NCBA President Marty Smith. The group pointed out beef is a source of the nutrient-rich foods recommended in the guidelines.

The mixed reactions to the guidelines are not surprising as some in the food industry are complaining they do not go far enough in recommending dietary changes, and that the agencies set the scientific agenda for the guidelines, not the Dietary Guidelines Advisory Committee.

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Washington Insider Fed Commits to More Dovish Lineup

Bloomberg is reporting this week that expected changes to the Federal Reserve Bank's interest-rate setting panel likely will make it even less likely to tighten monetary policy in the new year. The report expects this "more dovish view" no matter how much of a jolt the economy gets from the rollout of COVID-19 vaccines.

In the annual rotation of voters on the Federal Open Market Committee, the four regional Fed presidents who receive that privilege in 2021 will be marginally more dovish -- or inclined to favor easy policy -- than the four they replace. The most notable shift comes as Chicago's Charles Evans, one of the most predictably dovish officials, takes the vote held this year by Cleveland's Loretta Mester, a relatively hawkish figure on the panel.

In addition, a new permanent vote now belongs to Christopher Waller, the former research director of the St. Louis Fed who was sworn in as a member of the Fed's Board of Governors on Dec. 18. In one important respect Waller is decidedly dovish: He has long championed the view, more recently embraced by the Fed's leadership, that low unemployment doesn't automatically generate higher inflation.

"If vaccines take hold, the prospect of rate hikes might get a little closer than it feels like today," said Stephen Stanley, chief economist at Amherst Pierpont Securities. "But they're still not likely to be moving rates in 2021."

The Bloomberg report said that the Board, led by Chair Jerome Powell, this year adopted a new monetary policy framework that commits them to a more patient approach to raising rates than at any other time since the early 1970s.

The committee has backed that up in two ways. Its members have declared they won't hike before the labor market has reached their estimate of maximum employment and inflation is on its way to exceeding their 2% target. They also submitted economic projections in December showing 12 of 17 FOMC members didn't expect a single rate hike until at least 2024.

Still, the changes on the FOMC this year could influence the fine-tuning delivered by the Fed's asset-purchasing program, Bloomberg thinks. "The bank is currently buying $120 billion a month worth of Treasuries and mortgage-backed bonds in an effort to suppress longer-term borrowing costs for households and businesses. An unexpected negative turn for the economy could lead to calls to ramp up those purchases."

With vaccines being distributed and a new $900 billion stimulus package just passed by Congress and signed into law by President Donald Trump, the economy may be poised for a robust rebound in the second half of 2021. That could make it more likely the Fed comes under pressure to taper its bond purchases.

"Attitudes toward asset purchases might vary even among the group that is extremely dovish. If vaccines take hold, the prospect of rate hikes might get a little closer than it feels like today, said Stephen Stanley, chief economist at Amherst Pierpont Securities. But they're still not likely to be moving rates in 2021. So, I do think the change in composition matters in that sense, at least at the margin."

Two other factors that could play a role: inflation and financial stability. On the first, inflation is on track to show a sharp year-on-year increase come spring, based purely on price drops triggered by the pandemic last March and April. A burst in economic activity could push that higher, leading to a debate over whether price gains might persist.

Powell has already signaled he'd view sharp price increases in 2021 as "transient." With the new makeup of the committee, it's less likely that he'd provoke votes of dissent at Fed policy meetings by ignoring inflation.

But there could also be new concerns over financial stability if a brightening outlook and super-low rates cause corporations to go on another debt binge and financial markets to react giddily.

"As we shift gears from a delicate phase to one that's more likely to see an acceleration in the pace of the recovery, the Fed's attention will also have to shift and pay closer to attention to these financial stability concerns," said Gregory Daco, chief U.S. economist with Oxford Economics.

So far, the factors slowing access to vaccines seem to be keeping the lid on economic growth and investment but stronger efforts to control the virus are possible during the winter. Clearly, these developments are vitally important to producers and should be watched closely as they emerge, Washington Insider believes.

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