Washington Insider-- Friday

Easy Money to Continue

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

FSA Temporarily Suspends CFAP Payments

USDA has temporarily suspended making payments under the Coronavirus Food Assistance Program (CFAP), citing the regulatory review underway by the new Biden administration.

“In accordance with the White House memo, Regulatory Freeze Pending Review, USDA has suspended the processing and payments under the Coronavirus Food Assistance Program,” USDA's Farm Service Agency (FSA) announced. “Additional Assistance and has halted implementation until further notice. FSA local offices will continue to accept applications during the evaluation period.”

The agency further noted, “In the coming days, USDA and the Biden Administration intend to take additional steps to bring relief and support to all parts of food and agriculture during the coronavirus pandemic, including by ensuring producers have access to the capital, risk management tools, disaster assistance, and other federal resources.”

In guidance issued to state and county offices, FSA advised that “some activities have been suspended during the transition between Administrations. This routine action was taken to provide an opportunity for the incoming Administration to understand and evaluate the features of CFAP, including recent statutory provisions included in the Consolidated Appropriations Act, 2021.”

FSA said that the suspension of activity applies to “additional assistance under CFAP 1 and 2.”

Senate Republicans Seek To Protect Trump Waters Rule

More than two dozen Republican senators, led by Sen. Joni Ernst, R-Iowa, introduced a resolution seeking to preserve the Trump administration's Navigable Waters Protection rule put forth by EPA, which replaced the Obama-era waters of the U.S. (WOTUS) rule.

Republican lawmakers, especially those from rural states, have long complained the WOTUS rule is a prime example of overregulation.

“Everyone should agree that clean water should be a national priority. But I can't stand by and allow for another Washington power grab that will make it harder for Iowans to farm, ranch, and build,” Ernst said in a statement.

Trump EPA's rule set a significantly narrower definition of which waters are covered under federal protections, excluding wetlands connected to covered waters through groundwater, many ditches, and ephemeral streams, or streams that flow with rainwater. Environmentalists said that went further than rolling back the Obama-era regulation, excluding from federal protections waters that have been covered for decades.

The Biden administration is expected to revisit the issue as it is among the Trump-era rules that the new administration has under review.


Washington Insider: Easy Money to Continue

Bloomberg is reporting this week that Fed Chair Jerome Powell declared once again that the battle against COVID-19 is not over and that the Fed will work to keep the monetary spigots wide open to aid the pandemic-hit economy. He continued to brush aside concerns the super-easy stance will spawn a stock market bubble and too-high inflation.

“We have not won this yet,” he told a press conference on Wednesday, after the Fed voted to keep short-term interest rates pegged near zero. “We're a long way from a full recovery.”

Powell frequently referred to the poor condition of the labor market even as reporters asked about the meteoric rise of GameStop Corp. shares and frothy stock market prices. He spoke fervently about the plight of those whose lives have been upended by the virus, repeatedly pointing to the 9 million Americans still without jobs as a result of the pandemic.

“He's doubling down on the human angle,” said Priya Misra, global head of rates strategy at TD Securities. “His job isn't to get the stock market to a certain level, it is to get to full employment and he doesn't see a risk of inflation overshoot.”

It was a message for some Fed officials who have entertained the notion that the recovery could be stronger than expected, requiring the Fed to start pulling back on asset purchases this year. It was also a signal to the new administration that the Fed shares its goal of getting Americans back to work as quickly as possible and spreading the benefits of a tight labor market to Blacks and other groups frequently left behind.

As Powell spoke, stock prices slumped, suffering their biggest losses since October on growing concerns that the rapid rise of equities in recent months had left them overvalued. The Fed chairman declined to comment on the price gyrations in GameStop, a video-game retailer that has seen its market value skyrocket as a surge in retail buying has forced hedge funds to cover their short positions in the stock.

Democratic Senator and former presidential candidate Elizabeth Warren of Massachusetts cited the frenzy around GameStop in pressing the administration of President Joe Biden to crack down on Wall Street. “It's long past time for the SEC (Securities and Exchange Commission) and other financial regulators to wake up and do their jobs – and with a new administration and Democrats running Congress, I intend to make sure they do,” she said.

While Powell steered clear of commenting on GameStop, he evinced little concern about the broad-based run-up in stock prices, saying the Fed's focus is on the resilience of the financial system as a whole. “Financial stability vulnerabilities overall are moderate,” he said.

Although the Fed theoretically could raise interest rates to try to head off a stock market bubble, that's not something it has ever done or plans to do, he added.

The Fed chairman also played down worries about a spike in inflation as the economy enjoys what could be strong second half growth with newly vaccinated Americans returning to restaurants, movie theaters and sporting events. While some increase in inflation is likely, it probably won't be large or long-lasting, according to Powell.

“We're going to be patient” and not pull back on support for the economy on the first sign of stepped-up price pressures, he said.

In that regard, Powell said it was premature to talk about tapering the Fed's massive purchases of U.S. Treasury and mortgage-backed bonds, saying it would take “some time” to achieve the threshold for reducing them from their current clip of $120 billion per month. That's good news for the Biden administration, which is pushing for Congressional passage of a $1.9 trillion stimulus package that would greatly increase the supply of U.S. Treasury debt.

Bloomberg added that “Powell considers falling short of a full recovery as a much more significant risk compared to the possibility of higher inflation. This is in line with his recent public comment that now is not the time to talk about a policy exit. Instead, it confirms our assessment that the central bank stands ready to provide additional support to the economy, primarily through even more aggressive asset purchases.”

Powell, who's received the first vaccination of two against the virus, said the Fed remained focused on the downside risks to the outlook and the danger that the pandemic will leave lasting scars on the economy.

“Even after the economy fully reopens, I think we are still going to need to keep people in mind whose lives have been disrupted because they've lost the work that they did,” Powell said. “It would be wise for the longer run productive capacity of the country if we were to look out for those people and help them find their way back into the labor force even if means continuing support for an additional period of time.”

For Brett Ryan, senior U.S. economist with Deutsche Bank AG, “The message was simple. They are going to keep pedal to the metal,” he said. “They are not going to use monetary policy as a tool to pop bubbles in asset markets.”

So, we will see. The political scene is fully as toxic as it has been recently and economic and monetary policies are playing a central role in that outlook. These are developments producers should continue to watch very closely as emerge, Washington Insider believes.

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