Washington Insider-- Friday

Fed Chair Boosts Emphasis on Jobs

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

EPA Pick Regan Stresses He Will Look At All Options On Policies

North Carolina Department of Environmental Quality chief Michael Regan repeatedly assured lawmakers during his confirmation hearing last week that he would “look at all options” and be inclusive as he pursues decisions at the agency. In response to written questions, he has continued to deploy that line of response.

Sen. Joni Ernst, R-Iowa, pressed Regan during the hearing on biofuels issues and again in written questions submitted after the session.

Regarding the Renewable Fuel Standard (RFS) beyond 2022 when the current EPA authority on the program expires, Regan said he would consult with legal and policy teams to understand options for the agency relative to setting RFS levels beyond 2022.

Ernst asked if Regan will try to grow the use of advanced biofuels like biomass-based biodiesel, Regan said, "I will confer with my legal and policy team to understand all of the options before me regarding the RFS program, and in this specific case, how to set the RFS volume requirements beyond 2022.”

Regan was approved by the Senate Environment and Public Works Committee on a 14-to-six vote, with Ernst among those voting against the nomination. He is expected to win approval by the full Senate, but a vote on his nomination has not yet been set. As for the RFS beyond 2022, expectations are Congress may well weigh in on the matter just as they did to create the RFS in 2005 and when they updated mandates in 2007.

Simmons Disappears From List of Firms Ineligible To Export To China

The Simmons Foods plant in Gentry, Arkansas, is no longer listed as being ineligible to export product to China, with no explanation offered by the Food Safety and Inspection Service (FSIS) for the sudden shift.

Earlier this week, FSIS posted a notice that export requirements for China had changed, listing the change as being the Arkansas plant as the third company in the state ineligible to export to China, effective February 7.

But a notation posted Wednesday (February 10), simply removed the Simmons plant from the list.

Typically, when a company is declared in ineligible to export to a country and then becomes eligible again, there is still a period of time when shipments from the firm are not allowed, but that is not the case with Simmons. Contacts indicate this could be a sign that the initial announcement of export ineligibility was in error.

It is not clear how much poultry/products Simmons had been exporting to China as contacts have indicated they believe the firm had not made any significant shipments to the country.

Washington Insider: Fed Chair Boosts Emphasis on Jobs

The New York Times is reporting this week that although some prominent economists fret that the government might overdo its pandemic response and prompt prices to shoot higher, the nation's top inflation fighter disagrees — and believes that policymakers should stay focused on restoring full employment.

“Given the number of people who have lost their jobs and the likelihood that some will struggle to find work in the post-pandemic economy, achieving and sustaining maximum employment will require more than supportive monetary policy,” Jerome Powell, the chair of the Federal Reserve, said in speech to the Economic Club of New York on Wednesday. “It will require a society-wide commitment,” he emphasized.

Powell called policies that would bring the coronavirus pandemic to an end as soon as possible “paramount” and said both workers and businesses that had been disrupted by the crisis “are likely to need continued support.”

Unemployment remains sharply elevated at 6.3%, up from 3.5% before the pandemic — but it “jumps to about 10% when adjusted for misclassified job statuses and recent dropouts from the work force,” Powell said.

The pain has also been uneven. Employment has dropped just 4% for workers earning high wages but “a staggering 17%” for the bottom quartile of earners, Powell pointed out.

Separately, he noted that “inflation has been much lower and more stable over the past three decades than in earlier times,” and later added that he did not expect it to accelerate in a sustained way coming out of the pandemic.

Economists have often treated high employment and low inflation as conflicting goals, the Times says. Policies that foster strong demand and pull workers back into the labor market can push up wages as businesses compete for talent, prompting them to raise prices both because they need to pass along their rising costs and because eager consumers will accept such increases — at least in theory.

But the arithmetic has shifted in recent decades, as annual inflation remained stuck below the Fed's 2% goal even during long periods of very low joblessness.

President Biden and top Democrats are moving quickly to try to approve a $1.9 trillion pandemic relief package. But some economists, including former Treasury Secretary Lawrence H. Summers, have warned that the large package could touch off long-dormant price increases. Many Republican lawmakers have also cited that risk as a reason to oppose the package.

Powell did not weigh in on the package specifically, but he did seem to rebut many of those concerns. He and his colleagues have been unusually vocal in pushing for more fiscal support for the economy throughout the coronavirus era with some saying the bigger risk is doing too little rather than doing too much.

“I'm reluctant to get into what is clearly a very active debate,” Powell said when asked specifically about fiscal policy. But he added that “it is the essential tool for this situation.”

The Fed's own policies are set to stimulate growth, the Times says. The central bank cut interest rates to near zero in March and has been buying about $120 billion in government-backed bonds per month. It aims to keep borrowing cheap and credit flowing to companies and households.

Low rates are likely to stay for a “long time.” Powell and his colleagues said last year that they would worry only about too little employment, not about too much, and would shoot for periods of slightly higher inflation, aiming to average 2 percent over time. Officials have been clear that they plan to look past a pop in inflation that is expected to occur this year without lifting borrowing costs to cool off the economy.

Inflation is measured by taking the cost of a basket of consumer goods and services and comparing it to the cost of the same products a year earlier. Prices that dropped sharply in some categories at the start of the pandemic — think plane tickets, hotel stays and work clothes — are returning to more normal levels. That means the measure will spike mechanically in relation to the depressed 2020 months.

The Times insists that such a surge would not necessarily lead to “ever-rising prices.” While prices have shot up temporarily in recent decades, the report says that inflation has largely been benign and even a little bit too low for comfort across much of the developed world.

“There's quite a lot of savings on people's balance sheets, there is monetary policy, there is fiscal policy — you could see strong spending growth, and there could be some upward pressure on prices there,” Powell said Wednesday. “Again though, my expectation would be that that will be neither large nor sustained.”

Fed officials have gone so far as to suggest that if a large fiscal stimulus causes prices to rise sooner rather than later, that would be a welcome development. Central bankers can lift interest rates to control price increases, but it is less clear that they have the tools to reinvigorate price gains on their own.

Charles Evans, president of the Federal Reserve Bank of Chicago, said during a speech last week, “It will be critical for monetary policymakers to look through temporary price increases and not even think about thinking about adjusting policy until the economic criteria we have laid out have been realized.”

So, we will see. Inflation is still an enormous worry, and a strong political motivator — and will continue to be prominently debated. Still, the trends in coronavirus cases likely will be the most prominent policy concern and those debates should be watched closely by producers over the coming months, Washington Insider believes.

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