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–House Majority Leader Says GOP Wants to ‘Make Sure’ No Shutdown
–Can Keep the Gov Running and Cut Spending at Same Time
–’Senate Has Done Nothing’ to Cut Spending so Far

By John Shaw

WASHINGTON (MNI) – House Majority Leader Eric Cantor said Monday
there is no “reason in the world” for the government to shut down when
the current stop-gap spending bill expires on Friday.

Cantor said Republicans are “doing everything we can” to achieve
the twin goals of keeping the government operating while also reducing
federal spending.

“We can keep the government open and cut spending,” Cantor said at
a briefing. “We don’t want to see a government shutdown.”

Cantor chided Senate Democrats for not approaching spending
reductions with the same commitment as House Republicans. “The Senate
has done nothing,” he said.

The current stop-gap bill funding the federal government expires on
Friday. House Republican leaders have proposed a two week stop-gap
spending bill for the 2011 fiscal year that cuts about $4 billion from
current spending levels.

Senate Majority Leader Harry Reid responded positively to the House
GOP plan, but the White House has said little.

About 10 days ago, the House passed a stop-gap bill that cuts
spending for the rest of FY11 by about $61 billion below current levels.
The 2011 fiscal year began on Oct. 1, 2010 and extends until Sept. 30,
2011.

Cantor said House Republicans want to meet this overall goal of $61
billion in spending cuts and would prefer to achieve it through a
longer-term agreement on the FY11 budget rather than passing a
succession of short-term extensions that make incremental cuts.

House Republicans want to place “some important policy riders” on a
longer-term spending bill that runs for the rest of FY11, he said.

On another matter, Cantor said he is “concerned” about the rising
price of oil prices, saying it could hurt the economy.

** Market News International Washington Bureau: (202) 371-2121 **

[TOPICS: M$U$$$,MFU$$$,MCU$$$]

US DATA: Feb farm prices +2.4%.

Very quiet month-end trade with speculative interest at a minimum. It’s a new month in Asia, so perhaps we’ll see some fresh interest once the US shuts up shop for the day. Modest resistance is in the 1.3815/20 area on rebounds,

By Steven K. Beckner

(MNI) – When Federal Reserve Chairman Ben Bernanke gives his
semiannual Monetary Policy Report to Congress Tuesday, his testimony
might be less eventful than in the past.

Bernanke has visited Capitol Hill only recently, providing an
extensive look at his views on the economy and monetary policy. And the
Federal Open Market Committee’s upwardly revised economic forecast,
which will be contained in the report, has already been released.

However, the chairman’s comments always get plenty of attention,
and since he last testified on Feb. 9, there have been some adverse
developments, notably further eruptions in the Middle East that have
driven up the price of oil.

And there are other downside risks. Boston Federal Reserve Bank
President Eric Rosengren cautioned Monday against assuming that
“sovereign debt problems will not be disruptive to the world economy” or
that “state and local financing problems will not be disruptive to the
national economy.”

He might also have mentioned the prospect of federal spending cuts
as part of a potential deal to extend the federal debt ceiling, which if
they occur would make fiscal policy less accommodative than once
thought.

When Bernanke testifies before the Senate Banking Committee
Tuesday and before the House Financial Services Committee Wednesday, Fed
watchers will want to hear whether he thinks the oil spike or other
worries have significantly changed the economic outlook and in turn the
outlook for monetary policy.

Up until now, officials have indicated that policy can be expected
to remain essentially on hold for quite a while, becoming neither more
nor less accommodative.

The picture that emerges from public and private comments in recent
weeks is that the Fed is likely to maintain a highly accommodative
monetary policy with very low short-term interest rates and a bloated
balance sheet throughout this year and perhaps well beyond.

While it hasn’t been totally ruled out, an early end to the Fed’s
scheduled $600 billion of longer term Treasury securities purchases
isn’t likely. QE2 is highly likely to be carried to completion.

Beyond that, officials have indicated that it will take a
significant downside surprise to justify further asset purchases and
further expansion of the balance sheet.

At the same time, while a few Fed presidents would prefer to see
any early firming of policy, all indications are that the FOMC majority
is not inclined to initiate any kind of exit strategy in the foreseeable
future.

Financial markets are looking for Fed tightening to be delayed
until next year sometime, and nothing that top Fed officials have said
contradict that expectation.

The most that might be reasonably be expected this year is that, at
the end of QE2 or perhaps a bit later, the FOMC might discontinue its
practice of reinvesting maturing mortgage backed security proceeds and
instead let them run off, thereby permitting some natural shrinkage of
the balance sheet.

Bernanke suggested there is a certain policy inertia in his
Feb. 9 testimony before the House Budget Committee. Certainly, he gave
little indication that he foresees a need to tighten policy anytime
soon.

“With output growth likely to be moderate for a while and with
employers reportedly still reluctant to add to their payrolls, it will
be several years before the unemployment rate has returned to a more
normal level,” he said.

“Until we see a sustained period of stronger job creation, we
cannot consider the recovery to be truly established,” Bernanke went on.
Meanwhile, he said that despite “highly visible” price increases for
gasoline and other things, “overall inflation is still quite low and
longer-term inflation expectations have remained stable.”

“In terms of looking forward we will be trying to assess whether
the recovery is on a sustainable track, and things have moved in that
direction which is encouraging and we’ll be trying to assess whether
inflation is low and stable at around 2% or a bit less which we think is
about the right level and most of the central banks thinks is the right
level,” he said.

“If that appears to be the trajectory we are on, then additional
action would not be necessary,” he continued, but “if we are still in a
situation where the recovery does not seem established and deflation
risk remains a concern than we would have to think about additional
measures.”

Much more recently, in a Monday speech, New York Fed President
William Dudley said that, “barring a sustained period of economic growth
so strong that the economy’s substantial excess slack is quickly
exhausted or a noteworthy rise in inflation expectations, the outlook
implies that short-term interest rates are likely to remain unusually
low for ‘an extended period.’”

“The economy can be allowed to grow rapidly for quite some time
before there is a real risk that shrinking slack will result in a rise
in underlying inflation,” he added.

Dudley, the FOMC vice chairman, said, “A stronger recovery with
more rapid progress toward our dual-mandate objectives is what we have
been seeking. This is welcome and not a reason to reverse course.”

It would be surprising if Bernanke’s upcoming testimony differs
appreciably either from his last appearance or from what Dudley said.

Bernanke is likely to renew assurances about the Fed’s ability and
willingness to exit accommodation in a timely manner when the time
comes — an important element of communication from the FOMC’s point of
view.

There is a lively internal debate going on about the best way to
proceed with tightening when that time arrives.

The predominant view remains that the best first step, after
dropping the “extended period” commitment, is to raise the rate of
interest paid on excess reserves and, in turn, the federal funds
rate and other short-term rates.

The New York Fed is prepared to use reverse repurchase agreements,
if necessary, to undergird that policy.

Some officials, such as Philadelphia Fed President Charles
Plosser, argue that asset sales to shrink the balance sheet will
need to come early in the process. But, while that option has not
been foreclosed, most officials would prefer to delay active
shrinkage of the balance sheet, as opposed to passive measures such
as halting MBS reinvestment, until later in the tightening cycle.

Whatever method is used, Bernanke is sure to repeat past vows
to preserve price stability, while downplaying threats to that
stability.

** Market News International **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$$BR$]

US DATA: Freddie Mac’s Conventional Mortgage Home Price Index
(CMHPI) Purchase-Only Series for the United States registered a 2.6
percent decrease (-10.1 percent annualized) in the fourth quarter
relative to the third quarter on a not-seasonally-adjusted basis. U.S.
home values fell 4.3 percent relative to the fourth quarter a year ago.
Home values fell in all nine Census Divisions.

CNBC reports that the US Treasury has identified and frozen $30 bln in cash and securities held by Libya.

–Senate Budget Chairman: ‘Irresponsible’ to Have Gov Shutdown
–FY11 Stop-Gap Fight ‘Sideshow’ Compared to Budget Problems
–Critical Juncture for Bipartisan Fiscal Talks in Senate

By John Shaw

WASHINGTON (MNI) – Senate Budget Committee Chairman Kent Conrad
said Monday he expects President Obama would support an emerging
congressional agreement to fund the government for two additional weeks
as talks continue on completing the fiscal year 2011 budget.

Appearing on MSNBC, Conrad was asked if he believes Obama would
sign a bill that funds the government until March 18.

“I assume he would sign it,” Conrad said.

The current stop-gap bill funding the federal government expires on
Friday. House Republican leaders have proposed a two week stop-gap
spending bill that cuts about $4 billion from current spending levels.

Senate Majority Leader Harry Reid responded positively to the House
GOP plan, but the White House has said little.

About a week ago, the House passed a stop-gap bill that cuts
spending for the rest of FY11 about $61 billion below current levels.
The 2011 fiscal year began Oct. 1, 2010 and extends until Sept. 30,
2011.

In the TV interview, Conrad said the battle over the FY11 budget is
in some respects a distraction from the huge fiscal challenges that face
the U.S.

“This is really a sideshow compared to what has to be confronted,”
Conrad said.

It is imperative that “both sides come together on a comprehensive
plan” to cut the budget deficit, he said.

He said bipartisan talks continue in the Senate on a sweeping
deficit reduction plan along the lines of the Simpson-Bowles plan,
adding that a meeting Tuesday will give him a better indication of
whether an agreement is possible.

“Everything is on the table,” he said, adding that a balanced
fiscal plan would include discretionary and entitlement savings and tax
reform.

The Simpson-Bowles plan cut budget deficits by $4 trillion over a
decade.

Conrad is involved in a bipartisan group of senators that is trying
to assemble a deficit reduction plan that uses the Simpson-Bowles
package as its template.

Conrad said he disagrees with Treasury Secretary Tim Geithner’s
recent statements that short-term and medium-term budget deficits are
not a serious problem.

He said he agrees with Geithner that long-term deficits are an
especially acute problem, but said the short-term and medium-term
outlook are also very concerning.

** Market News International Washington Bureau: (202) 371-2121 **

[TOPICS: M$U$$$,MFU$$$,MCU$$$]

• Permanent mechanism to total EUR 500 mln all agreed
• Euro zone competitive divergences not acceptable
• Must increase short-term facility to full EUR 440 bln
• Must agree on economic governance
• Clear that mechanism must be renewed periodically

Asia may need to slow economic growth on inflation concerns, the chief economist of the World Bank says.

There’s a novel notion, employing your own economic weapons to deal with inflation rather than rely on others to do so for you…

WASHINGTON (MNI) – The following are excerpts from President
Obama’s remarks Monday to the National Governors Association in
Washington:

After living through a decade of deficits and a historic recession
that made them worse, we can’t afford to kick the can down the road any
longer. So the budget debate that we’re having is going to be critical
here in Washington. And so far, most of it’s been focused almost
entirely on how much of annual domestic spending — what in the parlance
we all domestic discretionary spending — that we should cut. There’s
no doubt that cuts in discretionary spending have to be a part of the
answer for deficit reduction.

…

But we know that this kind of spending, domestic discretionary
spending, which has been the focus of complaints about out-of-control
federal spending, makes up only about 12 percent of the entire budget.
If we truly want to get our deficit under control, then we’re going to
have to cut excessive spending wherever it exists — in defense spending
– and I have to say that Bob Gates has been as good a steward of
taxpayer dollars when it comes to the Pentagon as just about anybody out
there, but we’re going to have to do more — in health care spending, on
programs like Medicare and Medicaid, and in spending through tax breaks
and loopholes. That’s going to be a tough conversation to have, but
it’s one we need to have, and it’s one I expect to have with
congressional leaders in the weeks to come.

Those of you who are in this room obviously are on the front lines
of this budget debate. As the Recovery Act funds that saw through many
states over the last two years are phasing out — and it is undeniable
that the Recovery Act helped every single state represented in this room
manage your budgets, whether you admit it or not — you face some very
tough choices at this point on everything from schools to prisons to
pensions.

I also know that many of you are making decisions regarding your
public workforces, and I know how difficult that can be. I recently
froze the salaries of federal employees for two years. It wasn’t
something that I wanted to do, but I did it because of the very tough
fiscal situation that we’re in.

So I believe that everybody should be prepared to give up something
in order to solve our budget challenges, and I think most public
servants agree with that. Democrats and Republicans agree with that.
In fact, many public employees in your respective states have already
agreed to cuts.

…

So, yes, we need a conversation about pensions and Medicare and
Medicaid and other promises that we’ve made as a nation. And those will
be tough conversations, but necessary conservations. As we make these
decisions about our budget going forward, though, I believe that
everyone should be at the table and that the concept of shared sacrifice
should prevail. If all the pain is borne by only one group — whether
it’s workers, or seniors, or the poor — while the wealthiest among us
get to keep or get more tax breaks, we’re not doing the right thing. I
think that’s something that Democrats and Republicans should be able to
agree on.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MFU$$$,MGU$$$]

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