On The Money: Fed faces crossroads as it weighs third rate cut | Dem presses Mnuchin on ‘alleged rampant corruption’ | Boeing chief faces anger at hearing | Trouble for House deal on Ex-Im Bank

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THE BIG DEAL–Fed faces crossroads as it weighs third rate cut: The Federal Reserve is expected to cut interest rates for the third consecutive meeting Wednesday to boost a slowing economy despite growing concerns it could be depleting its arsenal of tools to fend off a recession.

The Federal Open Markets Committee (FOMC), the Fed’s policymaking arm, finds itself at a difficult crossroads during its two-day October meeting.

• The U.S. economy has slowed steadily throughout 2019, though the country still boasts joblessness near historic lows amid a record stretch without a recession. 

• Even so, the October jobs and third-quarter growth reports are likely to show the U.S. economy heading toward a plateau, raising pressure on the Fed to cut rates to spur activity.

• But with interest rates already close to record lows, skeptics of the Fed’s loose-money approach question whether another cut will protect the U.S. from a more severe downturn and instead leave the bank defenseless against a true recession.

I explain the Fed’s conundrum here.

 

The background: The Fed’s difficult decision comes as the bank faces intense political pressure from President Trump. The president’s years-long campaign to bully the Fed into zeroing-out interest rates, and blaming it for any economic setback, has plunged the independent bank into a risky political battle.

• Economists say the Fed is almost certain to slash borrowing costs as monthly job gains fall and Europe braces for a potential recession. 

• Fed watchers also cite the looming threat of new U.S. tariffs on Chinese and European goods, along with widespread geopolitical unrest, as major risks to the U.S. economy.

• But with interest rates already close to record lows, skeptics of the Fed’s loose-money approach question whether another cut will protect the U.S. from a more severe downturn and instead leave the bank defenseless against a true recession.

 

Reactions:

• “The weakness has already commenced,” said Daniel Alpert, managing partner at investment firm Westwood Capital. “We’re already seeing it in the data. So what are you going to do, wait until everybody’s flat on their backs?”

• “They’re already very close if not below the real inflation-adjusted zero lower bound,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics, referring to the level at which interest rates are effectively equal to zero.

 

ON TAP TOMORROW:

• The House Financial Services Committee continues its Tuesday markup, 10 a.m.
• The FOMC announces its October interest rate decision at 2 p.m., followed by a press conference with Fed Chairman Jerome Powell at 2:30 p.m.
• The Senate Budget Committee holds a hearing on the Chief Financial Officers Act of 1990, 2:30 p.m.

 

LEADING THE DAY

House Democrat presses Mnuchin on ‘alleged rampant corruption’ at Treasury: Rep. Bill Pascrell (D-N.J.), on Tuesday pressed Treasury Secretary Steven Mnuchin on “alleged rampant corruption” at the department, after The New York Times reported that Mnuchin instructed the department to take an action that benefited former “junk bond king” Michael Milken.

{mosads}In a letter addressed to Mnuchin, Pascrell, a member of the House Ways and Means Committee, chided the secretary, warning him that the government does not exist for the benefit of its higher-ups. 

“It should go without saying that the United States government is not a piggy bank to be looted for the sole benefit of the President and his friends. Yet this is not only what is occurring in your department, but it is happening at your direct supervision.”

The Hill’s Naomi Jagoda tells us why here.

The background: The New York Times reported Saturday that the Treasury granted an opportunity zone designation to an area in Nevada last year — after having previously determined that the area was ineligible — at the instruction of Mnuchin.

The area includes land co-owned by Milken, and the decision to grant the area opportunity zone status came after Mnuchin spent time with Milken, the Times reported.

Treasury fires back: In a statement over the weekend, Treasury spokeswoman Monica Crowley called the Times story “highly inaccurate and deeply misleading.” She said that Mnuchin had no knowledge of Milken’s investments in the Nevada county and that Treasury considered adding the tract as an opportunity zone at the request of public officials in the state.

 

Boeing chief faces anger at hearing: Boeing President and CEO Dennis Muilenburg testified before Congress for the first time Tuesday since two deadly crashes of his company’s 737 Max jets, apologizing to the victims’ families and facing tough questions from lawmakers.

“I wanted to let you know, on behalf of myself and all of the men and women of Boeing, how deeply sorry I am,” Muilenburg told the Senate Commerce Committee, in a hearing that came one year to the day after one of the 737s, Lion Air Flight 610, crashed, killing 189.

In a dramatic moment, family members of crash victims were recognized by the committee and held up photos of those they lost.

Muilenburg in his opening statement sought to assure senators that Boeing has made necessary improvements since the crashes.

“We have learned and are still learning from these accidents, Mr. Chairman. We know we made mistakes and got some things wrong. We own that, and we are fixing them. We have developed improvements to the 737 Max to ensure that accidents like these never happen again,” he said.

But the criticism from lawmakers was withering. Senators expressed anger that Boeing reportedly approved the design of the 737 Max despite concerns from their own pilots and did not act more quickly to address the problems after the Lion Air crash in October 2018. Five months later, another 737 Max, Ethiopian Airlines Flight 302, crashed, killing 157.

Sen. Richard Blumenthal (D-Conn.) grilled Muilenburg, saying that since the crashes his “anger has only grown.” He told the CEO that the victims of the crashes died “as a result of a pattern of deliberate concealment.”

Blumenthal blasted Boeing for initially blaming the crashes on “pilot error,” saying “those pilots never had a chance, those loved ones never had a chance.”

The Hill’s Zack Budryk has more from the dramatic hearing.

 

Democrats renew push for contractor back pay from government shutdown: Democratic senators are pushing their colleagues to support an amendment that would provide back pay for low-wage government contractors who went without pay during the record 35-day shutdown earlier this year.

• When Congress passed a spending bill to reopen the government in January, lawmakers provided back pay for federal employees who had been furloughed and those who had been required to work without pay.

• But many workers employed by contractors for security, cleaning or food service jobs were not compensated for the month of lost wages.

“They were ready and willing to work every single day of the 35-day shutdown, but they couldn’t,” said Sen. Tina Smith (D-Minn.), who introduced a back-pay amendment to a package of spending bills the Senate is considering this week.

The Hill’s Niv Elis tells us more about how this would work here. 

 

GOOD TO KNOW

• A House bill to reauthorize and impose stricter standards on the Export-Import Bank appears to be doomed in the Senate, threatening a shutdown at the controversial agency as lawmakers near a deadline to fund the government.  

• Senate Minority Leader Charles Schumer (D-N.Y.) said Tuesday he was growing more worried that President Trump could force a government shutdown as soon as next month over the impeachment fight.

• China says it will back off barriers to foreign investment in financial companies and stop forced technology transfers, a move that could boost trade talks with the United States.

• Democratic presidential candidate Sen. Bernie Sanders (I-Vt.) said he doesn’t think he needs to release more details about how to pay for his “Medicare for All” health care proposal.

 

Updated at 7:15 p.m.