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Morning Brief: Economists’ Expectations for Fed Meeting

by Renewing America Staff
June 20, 2012

Chairman Ben Bernanke leads a meeting of the Federal Open Market Committee (FOMC)—the body that sets interest rate policy—in March 2009 (Handout/Courtesy Reuters). Chairman Ben Bernanke leads a meeting of the Federal Open Market Committee (FOMC)—the body that sets interest rate policy—in March 2009 (Handout/Courtesy Reuters).

A majority of economists surveyed by Bloomberg expect the Federal Reserve to decide today to extend Operation Twist, but not to initiate another round of quantitative easing. Operation Twist is an effort by the Fed to lower long-term borrowing rates by selling up to $400 billion of short term bonds to buy longer-term instruments such as 10-year treasury bonds (NPR). The survey also found that 71 percent of economists did not expect Greece’s election to affect Fed policy.

CFR’s Center for Geoeconomic Studies analyzed worsening employment reports since the April meeting of the Federal Reserve’s Open Markets Committee (FOMC), and also expects the FOMC to extend Operation Twist.

California Creates Muni Bond Uncertainty

As California slashes its budget, it may threaten payments on municipal bonds (FT). Last year’s Californian budget eliminated redevelopment agencies (RDAs). Legislation required the repayment of outstanding debt in bonds issued by the RDAs, but uncertainty over how tax revenues should be split among the unwinding RDAs and municipalities has led to political fights and ratings downgrades on much of the estimated $20 billion in outstanding RDA debt.

The growing problem of municipal bankruptcy and North Carolina’s successful approach were discussed by Steven J. Markovich in the latest Policy Initiative Spotlight.

Debt and deficits. Read more from experts on the challenges in reducing U.S. debt.

Infrastructure

Reid and Boehner want Transportation Bill

House Speaker John Boehner (R-OH) and Senate Majority Leader Harry Reid (D-NV) want a new transportation bill before the current temporary extension expires at the end of the month (WashPo). The party leaders pressed joint-committee chairmen Sen. Barbara Boxer (D-CA) and Rep. John Mica (R-FL) to make compromises to finish their work on the bill by the end of the week. Debate continues over the size of infrastructure investment, transit funding and how to shore up the Highway Trust Fund.

The first Renewing America Progress Report and Infographic Scorecard, released last week, assesses at the current state of U.S. transportation infrastructure policy.

Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness.

Corporate Regulation and Taxation

The Case for Elimination

Bloomberg’s editors argue for eliminating corporate tax and broader tax reform. They propose setting the tax rates on dividends and long-term capital gains equal to the ordinary income tax rate, ending the preferential tax treatment of investment income. These changes would simplify taxation, increase fairness, eliminate double taxation, and end distortions, according to the authors.

With the highest statutory corporate tax rate in the world—35 percent for federal taxes only—the United States is at a competitive disadvantage. This CFR Backgrounder by Jonathan Masters discusses the effect of current policy, and proposals for U.S. Corporate Tax Reform.

Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform.

Innovation

Thiel Launches Later-Stage VC Firm

Noted Silicon Valley financier Peter Thiel launched Mithril Capital Management, a later-stage venture capital firm (FT). Thiel—who encourages promising entrepreneurs to drop out of college—sees a gap between early stage and late stage investors. Mithril will help fund and guide growing companies before they begin to consider an IPO. His co-founder explained: “We want to help companies have more flexibility as they make decisions that could have a significant impact on their evolution. It’s much harder to make those decisions in the glare of the public markets.”

In the face of persistently high unemployment, policymakers and workers look to innovation and entrepreneurship, the primary engine of U.S. job growth over the past thirty years. This CFR Backgrounder by Steven J. Markovich discusses how entrepreneurs create and finance startups and the ramifications of policies such as the JOBS Act.

Innovation. Read more on how the U.S. capacity to innovate could play a chief role in economic growth.

The Morning Brief is compiled by Renewing America contributor Steven J. Markovich.

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