This week, the Real Estate Roundtable discusses:
- U.S. ECONOMIC OUTLOOK & TAX POLICY – While Signaling that Fed Remains Prepared to Act, Bernanke Urges Congress to Avoid Economically Damaging “Fiscal Cliff”
- TRANSPORTATION INFRASTRUCTURE – Senate, House Conferees Trade Offers on Transportation Funding Legislation; As June 30 Expiration Looms, Boehner Floats the Idea of Another (Six-Month) Extension
While Signaling that Fed Remains Prepared to Act, Bernanke Urges Congress to Avoid Economically Damaging “Fiscal Cliff”
In testimony before the Joint Economic Committee yesterday, Fed Chairman Bernanke again urged lawmakers to take action on looming budget and tax matters to prevent the economy from going off a “fiscal cliff” at year-end. While providing reassurances that the Fed is prepared to take additional monetary policy action to prevent further backsliding on the economic recovery, Bernanke put the onus on Congress to act first, saying it must “try to avoid a situation where you have a massive cut in spending and increase in taxes all hitting at one moment” (msnbc.com, June 7).
Fed Chairman Bernanke again urged lawmakers to take action on looming budget and tax matters to prevent the economy from going off a “fiscal cliff” at year-end.
Without timely action on the year-end collision of automatic (“sequestration”) spending cuts, expiration of the 2001-2003 (Bush) tax cuts, expiration of temporary payroll tax cuts, and expectations of another showdown over the debt ceiling, say economists, GDP could fall by up to 3.5 percent next year. Economic worries have grown since last week’s disappointing jobs data (69,000 new private-sector jobs for May and an uptick in the unemployment rate, to 8.2%), along with escalating concerns over European debt issues.
Bernanke’s comments about the potential for Fed action were decidedly more opaque than those of Fed Vice Chair Janet Yellen, who on Wednesday argued more clearly for additional monetary policy action before the economy worsens (Reuters, June 7). “There are a number of significant downside risks to the economic outlook, and hence it may well be appropriate to insure against adverse shocks that could push the economy into territory where self-reinforcing downward spiral of economic weakness would be difficult to arrest,” she said
Given the range of views expressed by various Fed officials this week, the debate over potential next steps is expected to be heated at the Fed’s upcoming policy meeting on June 19-20. Many analysts reportedly believe events in Europe — particularly Spain’s banking crisis and Greece’s potential departure from the euro — will greatly influence the Fed’s next course of action, potentially even more than U.S. economic data.
Given the range of views expressed by various Fed officials this week, the debate over potential next steps is expected to be heated at the Fed’s upcoming policy meeting on June 19-20.
Among its policy options are:
• Pushing its pledge to keep short-term interest rates ultra-low beyond late 2014
• Extending the “Operation Twist” program (involving an exchange of shorter-term Treasury’s for longer-term bonds) beyond its scheduled expiration on June 30
• Embarking on a new round of quantitative easing (i.e. “QE3”)
On Capitol Hill yesterday, Bernanke gave no clues about what actions the Fed might take — or any timetable for such action — urging lawmakers to overcome their partisan stalemate on spending and taxes in order to forestall more economic dislocation and potential undoing of the recovery to date.
It remains to be seen whether lawmakers ultimately reach a budget-and-tax agreement before Dec. 31, although expectations for a “lame-duck” agreement are quickly morphing into projections that Congress might do a short-term extension to buy more time for debate.
A June 5 report by the Congressional Budget Office (CBO) outlining the potential impact on U.S. debt of various tax-and-spending scenarios sparked a series of exchanges between the White House and congressional Republicans — underscoring how entrenched both sides are in their views, and how difficult it will be to reach any kind of year-end agreement. Not surprisingly, the White House restated President Obama’s call for a deficit plan that includes spending cuts and revenue (tax) increases; Republicans decried the lack of leadership on the president’s part (Bloomberg Government, June 6).
Under all of the potential year-end scenarios, there would be risk for the nation’s commercial real estate sector (e.g., the potential for renewed recession in 2013 if Congress fails to act in a timely manner, or the possibility that a “rushed” tax restructuring fails to reflect real estate’s role in the economy).
The economy and budget and tax policy issues will be front and center at The Roundtable’s 2012 Annual Meeting next week, which will feature a presentation by former House lawmaker Rick Lazio on behalf of the Romney presidential campaign; a job creation panel to be moderated by Roundtable member Debra Cafaro (Ventas, Inc.); and a panel discussion on “Taxmageddon” and the looming fiscal cliff, to be moderated by Roundtable President and CEO Jeff DeBoer.
Source: The Real Estate Roundtable