Economic Daily Outlook



Budget Fight Heats Up

The White House, firing the latest salvo in this year’s budget battle, threatened to block any new spending bills until House Republicans reverse the spending cuts they approved in recent weeks.

The House budget resolution approved in March reduces non-defense discretionary spending for the fiscal year that starts Oct. 1 by $28 billion below the levels both sides agreed to last year. Discretionary spending requires annual congressional approval and excludes programs such as Medicare and Social Security.

“Until the House of Representatives indicates that it will abide by last summer’s agreement, the President will not be able to sign any appropriations bills,” White House acting budget director Jeffrey Zients warned Wednesday in a letter to House Appropriations Committee Chairman Hal Rogers (R., Ky.).

But House Republicans seemed undeterred by the White House threat and pledged to push ahead with their current plan.


U.S. Caps Emissions in Drilling for Fuel

Oil and gas companies will have to capture toxic and climate-altering gases from wells, storage sites and pipelines under new air quality standards issued on Wednesday by the Environmental Protection Agency.

The rule is the first federal effort to address serious air pollution associated with the natural gas drilling process known as hydraulic fracturing, or fracking, which releases toxic and cancer-causing chemicals like benzene and hexane, as well as methane, a powerful greenhouse gas.

The standards were proposed last summer in response to complaints from citizens and environmental groups that gases escaping from the 13,000 wells drilled each year by fracking were causing health problems and widespread air pollution.

Industry groups said meeting the proposed standards would cost hundreds of millions of dollars and slow the boom in domestic natural gas production. The original proposal was significantly revised, giving industry more than two years to comply and lowering the cost.

Smaller Companies Getting a Pass From Tougher Swaps Regulation

Farm co-ops, small banks and the local gas company may be toasting U.S. regulators whose votes yesterday freed them from strict Dodd-Frank Act oversight of dealers in the $708 trillion global swaps market.

Those and other types of firms rely on trading and holding swaps — financial instruments they use to hedge risk or speculate. Because of a 2010 proposal that any company entering into swaps worth more than $100 million in a year could be treated as a highly regulated dealer, so-called end users fought an effort to include them in a new system of capital and collateral requirements designed to avoid a repeat of the 2008 financial crisis.

The Commodity Futures Trading Commission and Securities and Exchange Commission approved a final rule to start with an $8- billion-a-year threshold that will drop to $3 billion within five years unless incoming data suggest a different course. The threshold increase means firms with a notional value of swaps below $8 billion in the preceding 12 months won’t be considered a dealer.


In a Shift, Medicare Pushes Bids

The Obama administration said Wednesday that it would vastly expand the use of competitive bidding to buy medical equipment for Medicare beneficiaries after a one-year experiment saved money for taxpayers and patients without harming the quality of care.

The experiment represented a sharp break from the usual fee-for-service Medicare program, under which beneficiaries can choose any supplier or provider of goods and services. In the experiment, Medicare officials invited bids and awarded contracts to 356 suppliers of medical equipment in nine metropolitan areas, including Cleveland, Dallas, Miami-Fort Lauderdale and Riverside, Calif.

Kathleen Sebelius, the secretary of health and human services, said the pilot program had reduced Medicare costs by 42 percent, or $202 million, by securing lower prices and curbing “inappropriate utilization” of personal medical equipment in the nine markets.

The bulk of the savings came from oxygen equipment, power wheelchairs and mail-order test strips for people with diabetes.

Toomey to force vote on Ryan budget

Congressional Republicans are coalescing around a plan for reforming Medicare sponsored by House Budget Committee Chairman Paul Ryan (R-Wis.) and Sen. Ron Wyden (D-Ore.).

Sen. Pat Toomey (R-Pa.), an influential voice on budget issues in the Senate, adopted Ryan’s Medicare plan in the budget proposal he unveiled Wednesday.

He said he will force the Senate to vote on the proposal later this year by taking advantage of a rule that allows any senator to offer a budget if the Budget Committee fails to act.

Senate Democrats do not plan to schedule a vote on their own budget measure.


Gas Future Point to Pump Relief

After a sizzling start to the year, gasoline futures prices are sliding, easing pressures on drivers and the U.S. economy and raising the prospect that prices at the pump could be headed lower still.

Gasoline futures, a key yardstick for wholesale prices, are down 6.3% from their high for the year reached on March 26, as the price of crude oil that gets refined into gasoline has dropped a similar amount amid easing tension over Iran, the world’s fourth-largest oil producer.

On Wednesday, futures tumbled for a fourth consecutive trading day, finishing down 1% at $3.2027 a gallon.

The month-long decline already has been reflected in lower pump prices.

The average cost of a gallon of gas nationwide has fallen for two straight weeks, according to the U.S. Energy Information Administration.

House clears highway bill with Keystone pipeline mandate, thwarts Obama

Defying a White House veto threat, the House on Wednesday passed legislation that extends transportation program funding through September and mandates construction of a controversial oil pipeline from Canada to the Gulf Coast.

All but 14 Republicans, with support from 69 Democrats, voted 293-127 for legislation that falls far short of Speaker John Boehner’s (R-Ohio) earlier plan to move a sweeping five-year, $260 billion package.

But Boehner’s retreat serves two crucial tactical and political purposes for the Speaker. It sets up talks with the Senate on the highway bill and keeps the Keystone pipeline — a centerpiece of GOP attacks on White House energy policy — front and center ahead of the November election.

Republican leaders hailed the bipartisan vote as a rebuke of President Obama.  Two senior Democrat leaders, Reps. James Clyburn (S.C.) and John Larson (Conn.), approved the measure.


OPINION: What new research on extended school day says

Two new studies are flashing warning signs about the move to extend the school day.  The Department of Education has made extended learning time a centerpiece of its reform efforts. This could have been a breakthrough moment for our nation’s education system, encouraging community partnerships to expand learning in ways that help students succeed and bring new resources into our schools. As decades of research on afterschool and summer learning programs show, community partners and innovative teaching approaches can help engage and excite students in learning, boosting achievement.

But the extended day approach being implemented in many schools as a result of the department’s push to increase instructional time falls short.  It largely ignores the deep body of research on what makes effective expanded learning.   Instead, too many schools are merely adding another hour or so of regular class time onto the school day.  Not surprisingly, two very recent studies suggest we might not accomplish much with this approach to improving schools.


Europe’s Rescue Plan Falters

Europe’s bold program to defuse its financial crisis by injecting cash into the banking system is running out of steam.

The European Central Bank’s roughly €1 trillion ($1.31 trillion) of emergency loans caused interest rates of troubled euro-zone countries to plummet earlier this year, easing fears about Europe’s debt crisis. But lately rates have again been marching higher.

One big reason: After months of using that cash to buy their government’s debt, banks in Spain and Italy have little left, say analysts and other experts.

The banks’ voracious buying had helped bring down the interest rates, providing relief for troubled countries that need to issue tens of billions of euros of bonds this year. But the banks, lately the primary buyers of Spanish and Italian government bonds, no longer have much spare cash to continue such purchases.

India Says It Successfully Tests Nuclear-Capable Missile

India said Thursday it had successfully launched a missile with nuclear capability and a 3,100-mile range, giving it the ability to strike Beijing and Shanghai, and heightening fears of an Asian arms race.

With the successful launching of the missile, called Agni 5, India joins a small group of countries with long-range nuclear missile capability, including China, Britain, France, Russia and the United States. “Agni” means fire in Hindi.

The launching comes amid growing international apprehension about militarization of Asia and a stepped-up strategic rivalry between the United States and China in Asia. In March, China announced a double-digit increase in military spending, while India recently became the world’s top arms buyer, bumping China from the top spot, in part because China increased domestic production.

Thursday’s launching “increases the perception of an arms race, and the reality of an arms race, in East Asia, particularly between China and India,” said Graeme Herd, head of the international security program at the Geneva Center for Security Policy, which trains diplomats in peace and security.

The timing of the missile launching may be seen as particularly antagonistic, he said, coming as China’s government deals with a scandal involving one of its top officials, and after the United States has stepped up its military presence in the Pacific. “All of this, from the Chinese perspective, looks like a movement from balancing China to containing China,” Mr. Herd said, and could inspire China to strengthen its weapons stockpile further, forge closer ties with Pakistan and delve deeper into Afghanistan.