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Thursday, April 12, 2012

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Economic Events of the Week

Thursday President Obama Gives a Series of Interviews on the Buffett Rule, International Trade
Friday – Consumer Price Index

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Story of the Day
Fed’s Bullard Sees Jobless Rate at 7.8% by Year-End (The Wall Street Journal)

Washington Update
GOP Leaders Ask W.H. to Halt Regs Until November (Politico)
Fed's No. 2 Strongly Backs Low-Rate Policy (The Wall Street Journal)
Grassley Sees Potential GOP Tax Shift if Dems Measure Growth Differently (National Journal)

Market Talk
Fed Says Economy Grew at ‘Modest to Moderate’ Pace (Bloomberg)
Labor Force Participation Projections (Calculated Risk)
Commerce Report Emphasizes Intellectual Property as Essential to Economic Growth (CQ)

Editorials & Opinions
Rebuffing Obama’s Gimmicky ‘Buffett Rule’ (Dana Milbank in The Washington Post)
Faust Visits the Insurance Lobby (The Wall Street Journal Editorial)

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Story of the Day

Fed’s Bullard Sees Jobless Rate at 7.8% by Year-End (The Wall Street Journal)

The Federal Reserve needs to wait and see more economic reports before deciding whether more easing or potential monetary policy tightening is needed, St. Louis Federal Reserve President James Bullard said during an interview with Bloomberg Radio. Bullard, who said he sees the unemployment rate at 7.8% by the end of the year, noted that March’s monthly employment report was just one “mediocre” report and not an immediate concern that would push the central bank toward further easing. On Friday, the government said employers added 120,000 workers in March, well below the 203,000 economists had forecast. The unemployment rate dipped to 8.2% from 8.3% a month earlier.


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Washington Update

GOP Leaders Ask W.H. to Halt Regs Until November (Politico)

The top two Republicans in Washington are asking President Barack Obama to stop issuing new regulations as the 2012 election season approaches. Speaker John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.) sent a letter to Obama Wednesday, urging him to “reaffirm” his “pledge to transparency, openness, and accountability by committing to withhold from issuing any economically significant or controversial ‘midnight regulations’ after the current fiscal year ends” Sept. 30. Of course, the outcome of the 2012 election — likely to be between Obama and Mitt Romney — is far from certain. But Boehner and McConnell say if Obama passes any major regulation during those politically charged months, they won’t be subject to “normal political checks and balances of the electorate and timely congressional oversight.”

Fed's No. 2 Strongly Backs Low-Rate Policy (The Wall Street Journal)

The Federal Reserve's No. 2 official made an emphatic case for sticking to the central bank's low-interest-rate policies and said the Fed might need to take additional action to bolster the economy if the recovery once again falters. Despite encouraging news on job growth in recent months, "labor market slack will remain substantial for a number of years to come," Fed Vice Chairwoman Janet Yellen argued in a speech in New York on Wednesday evening. That, and an expectation of subdued inflation, have justified the Fed's plan to keep short-term interest rates near zero until late 2014, Ms. Yellen said in an elaborate defense of the Fed's approach. Some of the Fed's internal economic models, in fact, suggested rates should stay low for even longer than planned, she noted. "Further easing actions could be warranted if the recovery proceeds at a slower-than-expected pace," she added, though she took a balanced approach to the question of even easier-money policies by noting that a faster-than-expected recovery could warrant credit tightening sooner than expected. Her remarks are important because the No. 2 at the Fed almost never veers from the stance of the chairman. Fed Chairman Ben Bernanke last week made his own argument for keeping rates low to combat high unemployment.

Grassley Sees Potential GOP Tax Shift if Dems Measure Growth Differently (National Journal)

Republicans could accept tax increases if they received credit for growth spurred by lower marginal rates, Sen. Chuck Grassley, R-Iowa, said on Wednesday, veering from the party line of no new taxes, period. The GOP, Grassley said in an interview, would be able to stomach a net increase in tax revenue from eliminating tax breaks as long as some of the new money came from dynamic growth – and was scored as such by the Congressional Budget Office. “Congress has to be able to dictate to CBO that you get credit for the dynamic economy” effects of lowering nominal rates, Grassley said. If that condition were met, he said, Republicans could get behind a deficit plan along the lines of the Simpson-Bowles commission’s recommendation of a 3-to-1 ratio of spending cuts to tax increases.


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Market Talk

Fed Says Economy Grew at ‘Modest to Moderate’ Pace (Bloomberg)

The Federal Reserve said the economy grew in all 12 of its regions as manufacturing, hiring and retail sales showed signs of strength in the face of higher fuel prices. “The economy continued to expand at a modest to moderate pace from mid-February through late March,” the Fed said today in its Beige Book business survey, published two weeks before the Federal Open Market Committee meets to set monetary policy. “Hiring was steady or showed a modest increase across many districts.”The Beige Book offers anecdotal evidence helping policy makers assess an economy that added 120,000 jobs in March, the fewest since October. Fed Chairman Ben S. Bernanke last month said that further “significant” improvements in the unemployment rate would probably require a more-rapid expansion.

Labor Force Participation Projections (Calculated Risk)

A key issue is what will happen to the labor force participation rate as the economy slowly recovers. In 2010 I looked at some of the cyclical and long term trends for the participation rate: Labor Force Participation Rate: What will happen? I concluded that a majority of the recent decline in the participation rate is due to changes in demographics. Changes in population and the participation rate can significantly impact the unemployment rate. If the Civilian noninstitutional population (over 16 years old) grows by about 2 million per year - and the participation rate stays flat - the economy will need to add about 94 thousand jobs per month to keep the unemployment rate steady at 8.2%. However if the population grows faster (say 2.5 million per year), and/or the participation rate rises, it could take significantly more jobs per month to hold the unemployment rate steady.

Commerce Report Emphasizes Intellectual Property as Essential to Economic Growth (CQ)

The Obama administration issued a report Wednesday highlighting the importance of intellectual property protections to the U.S. economy. The Commerce Department for the first time reviewed the role that intellectual property plays in private industry. In January, anti-piracy legislation that would have made it more difficult for foreign websites to steal copyrighted content stalled in Congress after an outcry from internet companies worried about the hampering of online innovation and infringement upon free-speech rights. In the new report, the White House stopped short of directing Congress on legislation. Instead, the administration emphasized the ways that intellectual property drives the economy and creates jobs.


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Editorials & Opinions

Rebuffing Obama’s Gimmicky ‘Buffett Rule’ (Dana Milbank in The Washington Post)

President Obama admits it: His proposed “Buffett Rule” tax on millionaires is a gimmick. “There are others who are saying: ‘Well, this is just a gimmick. Just taxing millionaires and billionaires, just imposing the Buffett Rule, won’t do enough to close the deficit,’ ” Obama declared Wednesday. “Well, I agree.” Actually, the gimmick was apparent even without the president’s acknowledgment. He gave his remarks in a room in the White House complex adorned with campaign-style photos of his factory tours. On stage with him were eight props: four millionaires, each paired with a middle-class assistant. The octet smiled and nodded so much as Obama made his case that it appeared the president was sharing the stage with eight bobbleheads.

Faust Visits the Insurance Lobby (The Wall Street Journal Editorial)

Liberals are still reeling from the Supreme Court's oral arguments on ObamaCare, but they've got nothing on the health-care industry. Most of its biggest players backed the White House because they figured the individual mandate to buy insurance would give them a huge new customer base. Now they may get stuck with all the new regulations but without the mandate. Consider the insurers. America's Health Insurance Plans (AHIP) started promoting something vaguely resembling the Affordable Care Act as long ago as 2006, and a very close resemblance in 2008. Lobbyists always need to manage political risk, but AHIP CEO Karen Ignagni's support gave ObamaCare a big early lift. The trade group now stresses it opposed the final bill, though that opposition came too late to stop the political momentum that it helped to create.


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