Economic Daily Outlook




Fed Cuts U.S. Growth Forecast for 2013 and 2014 (New York Times)

By Binyamin Appelbaum

The Federal Reserve chairman, Ben S. Bernanke, on Wednesday dismissed proposals to escalate the Fed’s economic stimulus campaign as “reckless,” arguing that the costs would be high and the benefits uncertain.

Mr. Bernanke spoke after the Fed’s policy-making committee ended a two-day meeting with a statement affirming its intention to continue until late 2014, and possibly longer, policies that aim to increase spending by holding down interest rates, rewarding borrowers and punishing savers.

The committee again demurred, however, from expanding those efforts, despite its prediction that millions of Americans would not find jobs for years to come.

The Fed also released a set of economic forecasts by 17 senior officials, only some of whom vote on monetary policy, showing that their expectations for domestic economic growth for this year have increased modestly since January. These documents showed that a majority of the 10 officials who vote on policy now foresaw the Fed raising interest rates by the end of 2014.

Taken together, the documents suggested that Mr. Bernanke, who effectively has control over monetary policy, may be facing increased pressure from Fed officials concerned that the central bank has promised too much, even as he confronts mounting external criticism from those who say he is not doing enough.



House Passes Bill to Exempt Small Banks from Swaps Rules (American Banker)

The House on Wednesday easily approved a bill that would provide small banks an exemption from clearing requirements for swaps under the Dodd-Frank Act.

Sponsored by Republican Rep. Vicky Hartzler of Missouri, the bill exempts small banks and credit unions from the 2010 law’s clearing requirement if their exposure to swaps is less than $1 billion.

That provision has the support of the Independent Community Bankers of America, which argued in a recent letter that Dodd-Frank impairs the ability of small banks to hedge their interest rate risk.

“Community banks’ use of low risk interest rate swaps do not pose market risks and reflect sound risk management practices,” Mark Scanlan, ICBA’s senior vice president for agriculture and rural policy, wrote in a Jan. 24 letter to leaders of the House Agriculture Committee.



OVERNIGHT HEALTH: GOP eyes healthcare law for offsets (The Hill)

By Sam Baker and Elise Viebeck

Republicans in both chambers want to tap President Obama’s healthcare law to help pay for their student loan extensions. Obama has spent the week on college campuses, browbeating Republicans to prevent the interest rates on student loans from doubling. But that push has resulted in two proposals that would affect his signature healthcare law.

House Speaker John Boehner (R-Ohio) announced late Wednesday that the House will vote Friday on a student loan bill, and he plans to offset the measure by cutting the healthcare law’s prevention and public health fund. Repealing the fund is worth about $12 billion as an offset, according to a Congressional Budget Office score of separate legislation.

Sen. Lamar Alexander (R-Tenn.) also wants to offset lower loan rates by using the healthcare law. He’s returning to a well that Congress has already tapped twice — the subsidies people will get to help buy insurance. His loan bill would require people to pay back a greater share of any excess subsidies.

FDA Plans ID-Tag System to Detect Faulty Devices (Wall Street Journal)

By Thomas M. Burton

The Food and Drug Administration is devising a new system for detecting malfunctions in medical devices that will tap medical and billing records from hospitals and insurance companies.

The system is designed to catch malfunctioning devices like the St. Jude Medical Inc. heart defibrillator wires recently linked to at least 20 deaths. The agency wants to assign a new bar-code-like identification number to medical devices.

It would use that number to search large databases of records that could include veterans’ and other hospitals, as well as large insurance companies. That could potentially allow the agency to know more precisely the rate at which a device is failing, and which patients have devices prone to malfunctions. The FDA plans to provide further details of its system as early as Thursday.

“The unique identifier is the real game changer,” said William H. Maisel, deputy director for science of the FDA’s medical device center. “With that number and a medical database, you could see, for example, if the reoperation rate for a certain defibrillator has become statistically a high outlier.”

The agency’s idea for the identification number—called a “UDI,” for unique device identifier—has been awaiting action for about 10 months by the White House Office of Management and Budget. A bipartisan group of senators wrote to OMB recently complaining that the FDA’s proposed new rules on the provision weren’t yet public. OMB said it doesn’t comment on such matters.



White House Promotes a Bioeconomy (New York Times)

By Andrew Pollack

The Obama administration is expected to announce a broad plan on Thursday to foster development of the nation’s “bioeconomy,” including the use of renewable resources and biological manufacturing methods.

The National Bioeconomy Blueprint, as the plan is called, discusses a variety of measures and strategies to spur research and development of medical treatments, crops, biofuels and biological manufacturing processes that would replace harsher industrial methods.

Use of biology “can allow Americans to live longer, healthier lives, reduce our dependence on oil, address key environmental challenges, transform manufacturing processes, and increase the productivity and scope of the agricultural sector while growing new jobs and industries,” the report says.

Much of what is in the 43-page-report, which the administration released before its planned announcement on Thursday, is a list of government programs that are already under way. So it is not clear what concrete changes, if any, will result.

Still, some biotechnology industry executives and scientists welcomed the plan as a sign of the government’s commitment, saying it would now be easier to push for specific new programs to foster biotechnology development.



Two Parties Find a Way to Agree, and Disagree, on Student Loan Rates (New York Times)

By Peter Baker and Jennifer Steinhauer

As President Obama wrapped up a barnstorming tour of college campuses in swing states on Wednesday, Democrats and Republicans agreed that they wanted to avoid a steep increase in the student loan interest rate this summer. But the chief issue remained unsettled: how to pay the cost of doing so.

In a second day of campaign-style rallies, Mr. Obama pressed his attack on Republicans, depicting them as unsympathetic to college students in need. Republicans countered by accusing the president and his Democratic allies of playing politics with the issue and trying to raise taxes on small businesses to pay for the subsidized rate.

Caught in the middle were seven million college students who will see the interest rate on their federally subsidized loans double to 6.8 percent on July 1 unless Congress and the White House come together on a plan to prevent that, at a cost of $6 billion. For a typical student, the White House said the higher rate could mean as much as $1,000 in additional debt per year at a time of high unemployment among recent graduates.

Mr. Obama has made the issue his top talking point in recent days as part of an effort to put Republicans on the defensive and duplicate the political success of the payroll tax cut extension last winter. Speaking at the University of Iowa here, he seized on a comment by an aide to Speaker John A. Boehner that the president should focus on fixing the economy.

House to Vote Friday on Student Loans, Says Speaker Boehner (Education Week)

By The Associated Press

The House will vote Friday on a Republican bill preventing interest rates on federal student loans from doubling this summer, paid for by cutting money from President Barack Obama’s health care overhaul law, House Speaker John Boehner said Thursday.

The abrupt announcement by Boehner, R-Ohio, came with Obama and congressional Democrats clamoring daily for action to prevent today’s 3.4 percent interest rates on subsidized Stafford student loans from automatically increasing to 6.8 percent on July 1.

That election-year increase, set by law unless Congress blocks it, would affect 7.4 million students at a time when both parties are competing for the affection of young voters. Each is also trying to show voters that it knows best how to shield people from pain inflicted by the weak economy.



House skirmish over defense spending begins (Washington Post)

By Walter Pincus

The roller-coaster ride is about to begin for defense spending, and it promises to be long and bumpy.

On Thursday, subcommittees of the House Armed Services Committee begin to mark up the fiscal 2013 Defense Authorization Bill. This will be the ride up because the Republican-controlled panel has indicated that it will add about $8 billion to the $546 billion set by the 2011 Budget Control Act (BCA). President Obama, Defense Secretary Leon E. Panetta and the Joint Chiefs of Staff supported the BCA, but the president’s budget is $3.7 billion above the BCA figure. That’s because it includes security spending for agencies other than the Pentagon.

For its core fiscal 2013 budget, the Pentagon produced a new strategic plan as well as proposed reductions next year — $6 billion from this year’s spending. It went farther, too: a total of $487 billion over the next 10 years. However, understand that after 2013, those deep cuts are from increases already built in to spending over those years.

Fiscal 2013 is the only year that defense spending under Obama will actually be cut from a previous year. From fiscal 2013 on, the defense budgets will continue to grow, just not as fast as planned.

Under the House GOP plan, fiscal 2013 defense spending would be at the same rate as this year, but its future increases would grow at a faster pace than in the president’s plan.

U.S. to Step Up Drone Strikes Inside Yemen (New York Times)

By Eric Schmitt

The White House has given the Central Intelligence Agency and the Pentagon broader authority to carry out drone strikes in Yemen against terrorists who imperil the United States, reflecting rising concerns about the country as a safe haven for Al Qaeda, a senior administration official said Wednesday night.

The policy shift, approved this month, allows the C.I.A. and the military’s Joint Special Operations Command to strike militants in Yemen who may be plotting attacks against the United States, but whose identities might not be completely known, an authority that already exists in Pakistan, the official said.

Previously, the United States focused on a list of known leaders of the Qaeda affiliate in Yemen, which many American officials now says poses a bigger immediate threat to the United States than do militants in Pakistan.

“This broadens the aperture slightly” for the C.I.A. and the military command, the official said, noting that any targets must be approved by the White House and top administration officials before the strikes can take place.

The gradual expansion of the drone program in Yemen illustrates a spirited debate within the administration between the C.I.A. and some military counterterrorism officers who want to attack Qaeda fighters and commanders aggressively in Yemen, and some diplomats and other government officials who are wary that increasing the drone strikes could drag the United States into another regional conflict in the Middle East.