Signs from FED Point to Third Round of Bond Purchases
Bloomberg reports, “The Federal Reserve is likely to announce a third round of bond purchases tomorrow, according to almost two-thirds of economists in a Bloomberg survey, while also extending the duration of its zero-interest-rate policy into 2015. Chairman Ben S. Bernanke and his colleagues on the Federal Open Market Committee will once again roll out unconventional policies to bolster economic growth of less than 2 percent in the second quarter and bring down unemployment stuck above 8 percent for 43 straight months, the survey showed. ‘The Fed clearly wants to do more,’ said Nick Sargen, a former San Francisco Fed economist who oversees $40 billion as chief investment officer at Fort Washington Investment Advisors in Cincinnati. ‘The economy is looking lackluster, and the Fed has said all along that they feel it’s almost immoral that the unemployment rate is as high as it is.’”
Senators Negotiating Deal to Avoid Fiscal Cliff
According to The Hill, “A bipartisan group of senators is negotiating a roughly $55 billion debt ‘down payment’ that would temporarily turn off automatic spending cuts and buy Congress at least six months to work out a bigger deal. The down payment would be linked to a deficit-reduction framework that would bind committees with jurisdiction over spending and taxes to an action plan, say sources familiar with the negotiations. If a deal is reached and leaders sign off on it, Congress could approve the plan in a lame-duck session. The goal of the group is to keep Congress from going over the so-called fiscal cliff without simply punting into next year the difficult questions over spending and taxes that have stymied their colleagues.”
“Hello, Washington. It’s the real world calling.”
Jake Sherman and Seung Min Kim write in Politico, “Hello, Washington. It’s the real world calling. A disaster is coming. Can you do something — anything — to stop the bleeding? Crisis after crisis this year, Washington has responded with a simple shoulder shrug. … The latest get-it-together moment came Tuesday, when Moody’s — one agency that has not downgraded the nation’s credit — warned that it could lower the rating unless Washington came together to agree on a budget package in 2013 that significantly cut the nation’s debt. The agency’s caution signal came ahead of the so-called fiscal cliff — a massive package of tax increases and spending cuts set to go into effect after this year unless Congress reaches an agreement to avert it. … Lawmakers have heard the repeated threats from the outside — but it’s unclear whether they’re actually listening. Top congressional players aren’t engaged in serious talks over resolving the fiscal cliff while Capitol Hill is all but resigned to the fact that no movement on the cliff will occur until after the Nov. 6 election. ‘It’s interesting that both the downgrade and the threatened downgrade don’t address our economy, they address our political system,’ Senate Majority Whip Dick Durbin (D-Ill.) told POLITICO. ‘They basically said it’s time for members of the Senate and the House to get it together. … I agree with them. There’s no excuse left at this point.’”
“Freshmen give in to business as usual on CR vote”
Kate Nocera writes for Politico, “The House freshmen are growing up. The days of battling with leadership over spending levels and controversial riders, and threatening a government shutdown seem to be relics of the past as Congress prepares to once again pass a temporary resolution that punts everything into next year. … These conservatives, who had pledged to stand firm and change the way Washington does business, seem resigned, if not accepting, of the fact they’ll probably vote ‘yes’ on a spending deal that actually increases spending by $8 billion. It may be the last meaningful vote before they face voters for reelection. … Despite all their pledges to fight against Washington, they’ve come around to at least one Capitol Hill truism: We’ll do it after the election. … The goal of the CR, which has a slightly higher $1 trillion spending level for the new fiscal year, is to avoid a government shutdown and push bigger budgeting decisions into the next Congress. House conservatives pushed for the six-month deal, and with their fingers crossed, hope Republicans will win the Senate and the White House in November when they would then be able to move their agenda through.”
Moody Threatens Credit Downgrade, Government Unsustainable
The New York Times, “Congressional leaders dug in their heels on Tuesday against any quick deal to resolve a looming fiscal disaster before the election, even as a major ratings agency warned that it would downgrade the government’s debt if no solution was found by year’s end. Democratic leaders have warned their own members to tone down any discussion of a short-term resolution to the ‘fiscal cliff,’ betting that Republican fears over the January deadline will drive them to the negotiating table shortly after the November election. Speaker John A. Boehner, reacting to the downgrade notice from Moody’s Investor Service, said it underscored the Republican position that the nation’s precarious fiscal condition could be addressed only by cutting government spending. … Like S&P, Moody’s emphasized political dysfunction more than soaring government debt. The agency said Washington must come to agreement to head off billions of dollars in simultaneous tax increases and spending cuts scheduled to begin in January — and to put the government on a sustainable fiscal trajectory. Only then would the United States keep its AAA rating.
Boehner on Debt Deal: “I’m not confident at all”
The Wall Street Journalreports, “Congress appears on track to avert a politically perilous fight over a government shutdown, but the top House Republican said Tuesday he has little confidence that lawmakers will be able to prevent an economically damaging combination of tax increases and spending cuts due to take effect in the new year. …
Congress, which returned to work this week after a five-week recess, is preparing to pass just one major bill before returning to the campaign trail next month: a $550 billion measure to fund the government through March. This would prevent the government from halting nonessential services when its fiscal year ends Sept. 30, even though Congress failed to pass a single one of the 12 spending bills that are required each year to fund the various departments and agencies.
In a news conference Tuesday, Mr. Boehner said, ‘I’m not confident at all’ that Congress and the White House will reach a deal in the final two months of the year to block the combination of tax and spending measures—the so-called fiscal cliff—from taking effect early in 2013.”
Too Late for Farm Bill?
The Hill reports, “A large Capitol Hill rally organized by the major farm lobbies might be arriving too late to rescue the 2012 farm bill. The House Agriculture Committee and the Senate have passed five-year bills authorizing hundreds of billions of dollars in spending on food stamps and the farm safety net, but House leaders have not yet shown a willingness to bring a version of the legislation to the floor. The impasse in the House has given Wednesday morning’s Farm Bill Now rally a last-ditch feeling, coming as it does after a marathon lobbying effort that accompanied the development of the multiyear legislation. … There is talk in congressional leadership circles of passing a short-term extension of farm policies to buy time for a larger package. Barring that, the Senate might simply pass the limited drought-relief bill that was approved by the House before the August recess. But lobbyists fear action on a farm bill will be delayed until the lame-duck session, when Congress could wind up cutting farm programs deeply by wrapping them into a package averting $109 billion in sequester cuts.”