Washington Extra

July 23, 2010

What do central bankers and slalom skiers have in common? Bobbing and weaving, for one thing.

Federal Reserve Chairman Ben Bernanke sat in front of lawmakers for a second day on Thursday to deliver his semi-annual assessment of the economy, cleverly sidestepping the obstacles they placed to his right and left. With election season fast approaching, each side wanted ammunition for their campaigns, and for their partisan readings of the economy.

Not surprisingly, the resolutely apolitical Bernanke trod carefully. For the Democrats, there was comforting agreement that this week’s bill to regulate Wall Street had placed the financial system on a sounder footing and reduced the risk of another devastating financial crisis. Last year’s $862 billion economic stimulus had saved or created somewhere between one and three million jobs, Bernanke said, and the government was right to run a fiscal deficit in 2010 to support the economy.

But Republicans did not come away empty handed either, with Bernanke emphasizing that the medium and long-term fiscal path was unsustainable. Rep. Jeb Hensarling of Texas wanted Bernanke to agree that excessive government regulation, the costs of healthcare legislation and uncertainty about government policy had significantly constrained business investment and hiring, and went as far as to quote a 1979 Ph.D thesis on the effects of uncertainty.

“You know who wrote those words?” he asked. “And yes, it is a trick question.”

The answer of course was Bernanke himself, who after admitting that it was an “excellent thesis”, went on to agree that uncertainty was having a negative effect, even if that effect was tough to quantify.

Elsewhere in Washington today, Democrats all but gave up the fight for legislation this year to combat climate change, and President Barack Obama signed into law a bill designed to combat waste and fraud in government. Obama used just four pens to sign the legislation, a definite saving on the 11 he used for Wednesday’s Wall Street bill. Later, just to emphasize that even his vacations are not wasteful, he announced he would be spending the August 14 weekend along the hard-hit Florida Gulf Coast.

Here are our top stories from today:

Democrats delay climate fight until fall

Senate Democrats said they would wait until the fall to take up climate-change legislation, setting the stage for a pitched battle in the weeks before congressional elections. The delay would give Democrats a small window to advance the complex legislation amid intense political pressure in the weeks before the November elections.

For the fully story by Tim Gardner and Thomas Ferraro, click here.

Senate bill to implement offshore reforms next week

Senate Majority Leader Harry Reid said he will unveil an energy bill next week that will implement offshore drilling reforms and “hold BP accountable” for its historic oil spill in the Gulf of Mexico. The energy bill will seek to cut U.S. oil imports by promoting trucks that run on natural gas. It will also promote energy efficient homes and businesses.

For more of this story, click here.

Bernanke says further easing hinges on jobs

The Federal Reserve may try to push borrowing costs even lower if the job market continues to languish, Fed Chairman Ben Bernanke said, offering a hint of what might trigger additional monetary easing. After three quarters of solid growth, the U.S. economy has been losing steam, with firms still reluctant to hire and the housing sector seemingly unable to exit a prolonged rut.

For more by Pedro Nicolaci da Costa, click here.

Home sales at 3-month low, jobless claims spike

Sales of previously owned homes hit a three-month low in June while new claims for jobless benefits surged last week, the latest indications that the economy is on the ropes. Another report showed an index of leading indicators, a gauge of the economy’s future prospects, fell last month, consistent with views the recovery was cooling and the slowdown could persist through the end of the year.

To read more of Lucia Mutikani’s story, click here.

Pelosi: Tax cuts for affluent should go

House of Representatives leader Nancy Pelosi affirmed her support for letting lower tax rates for wealthier Americans expire at year-end, despite opposition by several Senate Democrats who say the economy is too fragile for higher taxes.

For the fully story by Kim Dixon, click here.

And some stories from elsewhere in the world…

UK far-right leader barred from Queen’s garden party

Buckingham Palace barred the leader of a British far-right party from entry to a garden party held by Queen Elizabeth, to which he had been invited, because he had made it a political issue. Nick Griffin, head of the British National Party (BNP) which calls for a halt to immigration, voluntary repatriation of immigrants and Britain’s withdrawal from the European Union, had been invited to the party as he is a Member of the European Parliament. However, the decision to include him on the guest list provoked condemnation from anti-racism campaigners and just hours before the event was due to take place, officials announced he was no longer welcome to attend.

German MP: overweight people must pay more on health

A conservative member of Germany’s parliament wants overweight people to pay more for healthcare insurance, arguing that their unhealthy lifestyle is putting too much of a strain on hospitals. Marco Wanderwitz, a member of Chancellor Angela Merkel’s Christian Democrats (CDU), told Bild newspaper it was not fair for those leading healthier lives to have to pay for those who raised healthcare costs by being overweight.

For more stories from our Washington correspondents visit www.reuters.com and stay informed.

Photo Credit: REUTERS/Jim Young (Federal Reserve Chairman Ben Bernanke testifies before a House Financial Services hearing, July 22, 2010.)

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