White House Reaches Informal Deal with Boeing for Air Force One

• 02, 27, 2018
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U.S. President Donald Trump has reached an agreement with the Boeing Co to provide two Air Force One planes for $3.9 billion, the White House said on Tuesday.

“President Trump has reached an informal deal with Boeing on a fixed-price contract for the new Air Force One Program,” Deputy Press Secretary Hogan Gidley told Reuters. He said the contract will save taxpayers more than $1.4 billion, but those savings could not be independently confirmed.

Trump has said Boeing’s costs to build replacements for Air Force One aircraft – one of the most visible symbols of the U.S. presidency – were too high and urged the federal government in a tweet to “Cancel order!”

The Boeing 747-8s are designed to be an airborne White House able to fly in worst-case security scenarios, such as nuclear war, and are modified with military avionics, advanced communications and a self-defense system.

“President Trump negotiated a good deal on behalf of the American people,” Boeing said in a news release.

U.S. aerospace analyst Richard Aboulafia said the White House was engaging in “political theater.”

“There’s no evidence of a discount,” said Aboulafia, vice president of analysis at Teal Group.

Earlier this month, the Pentagon released Air Force budget documents for fiscal year 2019 disclosing the $3.9 billion cost for the two-aircraft program. The same 2018 budget document, not adjusted for inflation, showed the price at $3.6 billion.

Boeing would only have so much room to offer discounts given the high proportion of supplier content on Air Force One, from refrigerators to missile warning systems, Aboulafia said by phone.

The big U.S. defense contractor said the deal includes work to develop and build two planes, including unique items such as a communications package, internal and external stairs, large galleys and other equipment.

The “informal deal” will need to be codified in a formal contract with comprehensive, complex terms and conditions said Franklin Turner, a partner specializing in government contracts at law firm McCarter & English, suggesting a final deal was still a ways off.

Boeing stock was up 1.4 percent at $368.54, trading at an all-time high.

 
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Fed’s Powell Nods to ‘Gradual’ Rate Hikes, Close eye on Inflation

• 02, 27, 2018
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Federal Reserve Chairman Jerome Powell, pledging to “strike a balance” between the risk of an overheating economy and the need to keep growth on track, told U.S. lawmakers on Tuesday that the central bank would stick with gradual interest rate increases despite the added stimulus of tax cuts and government spending.

Fed policymakers anticipate three rate increases this year, and Powell gave no indication in prepared remarks to the House Financial Services Committee that the pace needs to quicken even as the “tailwinds” of government stimulus and a stronger world economy propel the U.S. recovery.

“The [Federal Open Market Committee] will continue to strike a balance between avoiding an overheating economy and bringing … price inflation to 2 percent on a sustained basis,” Powell said in prepared remarks for his first monetary policy testimony to Congress as Fed chief.

“Some of the headwinds the U.S. economy faced in previous years have turned into tailwinds,” Powell said, noting recent fiscal policy shifts and the global economic recovery. Still, “inflation remains below our 2 percent longer-run objective. In the (FOMC‘s) view, further gradual rate increases in the federal funds rate will best promote attainment of both of our objectives.”

The testimony sent Powell’s first signal as Fed chief that the massive tax overhaul and government spending plan launched by the Trump administration will not prompt any immediate shift to a faster pace of rate increases. “Gradual” has been the operative word since the Fed began raising rates under Powell’s predecessor, Janet Yellen, in late 2015.

The Fed is expected to approve its first rate increase of 2018 at the next policy meeting in March, when it will also provide fresh economic projections and Powell will hold his first press conference.

“This is a continuation of where this Fed was under Chair Yellen,” said Robert Albertson, principal and chief strategist at Sandler O‘Neill & Partners in New York.

“They are normalizing, they are not tightening … The surprises, if we are going to see them, are going to be after more data comes out in the next month or two,” and accounts for things like the tax cuts and whether business investment spending continues higher, he said.

Market reaction was muted. U.S. stocks were trading slightly lower while the dollar .DXY was stronger against a basket of currencies. Prices of U.S. Treasuries were mixed.

Valuation pressures

Powell’s appearance before the House panel is his first as Fed chief. He used his prepared remarks to strike notes likely to be welcomed by the Republican majority on the panel – including promises of “transparency” and a nod to the monetary policy rules some of them favor.

“I am committed to clearly explaining what we are doing and why we are doing it,” Powell said.

But in his remarks and in a monetary policy report issued to Congress by the Fed last week he also stuck close to a safe script, mentioning none of the new initiatives that some of his colleagues have pushed for, such as a review of the Fed’s system for managing inflation.

That report acknowledged “valuation pressures” in parts of the economy, and noted the recent return of volatility in stock markets.

Though rising long-term interest rates and recent equity market volatility have tightened financial conditions, Powell said, “we do not see these developments as weighing heavily on the outlook for economic activity, the labor market and inflation.”

Rather, “the robust job market should continue to support growth in household incomes and consumer spending, solid economic growth among our trading partners should lead to further gains in U.S. exports, and upbeat business sentiment and strong sales growth will likely continue to boost business investment,” he said.
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Sources: Trump to Consider Biofuels Policy Tweaks at Tuesday Meeting

• 02, 27, 2018
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U.S. President Donald Trump will meet with senators and Cabinet officials on Tuesday to discuss ways to lower the cost of the nation’s biofuels policy to oil refiners, according to sources familiar with the matter.

The meeting reflects rising concern in the White House over the current state of the U.S. Renewable Fuel Standard, a law requiring refiners to mix biofuels such as corn-based ethanol into their fuel, after a Pennsylvania refiner blamed the regulation for its recent bankruptcy.

The meeting will include Republican Senators Ted Cruz of Texas, Pat Toomey of Pennsylvania, Chuck Grassley and Joni Ernst of corn state Iowa, along with Environmental Protection Agency Administrator Scott Pruitt, Agriculture Secretary Sonny Perdue, and Energy Secretary Rick Perry, according to the sources.

The meeting will also include White House legislative director Marc Short, who will seek to ensure any agreement can be achieved through executive orders and regulatory actions defensible in court, the sources said.

Representatives for those officials, and the White House, declined to comment.

U.S. farm groups urged Trump in a letter on Monday not to weaken the RFS, calling it a critical engine of rural jobs. “Any action that seeks to weaken the RFS for the benefit of a handful of refiners will, by extension, be borne on the backs of our farmers,” according to the letter.

Under the RFS, refiners must earn or purchase biofuel blending credits called RINs to prove to the federal government that enough biofuels are being blended into their gasoline and diesel to comply with the policy.

As biofuels volumes quotas have increased over the years, however, so have prices for the credits – meaning refiners that buy them instead of acquire them by blending fuels themselves are facing rising costs.

Oil refiner Philadelphia Energy Solutions (PES), which employs more than 1,000 people in a key electoral state, declared bankruptcy last month and blamed the regulation for its demise. Reuters reported other factors may also have played a role in the company’s bankruptcy, including the withdrawal of more than $590 million in dividend-style payments from the company by its investor owners.

Two of the sources familiar with the agenda of the Tuesday meeting said at least four options aimed at reducing the cost of RINs to refiners like PES will be considered — though they noted the effort would be constrained by political and legal realities that have derailed previous reform efforts.

Prices of RINs tumbled by nearly 20 percent in the past week on expectations of a regulatory tweak.

One idea would be to count U.S. ethanol exports toward annual biofuels volumes mandates that are currently focused purely on domestic usage, an idea the sources said had been studied by Agriculture Secretary Perdue who now favors it.

Another idea would be to place a cap on the price of a RIN.

Senator Cruz late last year suggested capping RIN prices at 10 cents each, far below the current value of over 60 cents, in a move that was roundly rejected by biofuels advocates.

The meeting will also consider measures to remove speculation from the RIN market, potentially by limiting RIN transactions to those directly involved in generating and consuming them: blenders and refiners, the sources said.

Any plan would also likely include a concession to the ethanol industry, they said, such as a waiver to allow gasoline containing 15 percent ethanol to be sold year round. Sales of high-ethanol blends are currently restricted in the summer due to concerns over smog.

The meeting could also look at solutions focused more directly on refiner PES — like waiving its current RIN obligation valued at about $350 million, the sources said. But any such move would likely draw a backlash from other refiners who have no hope of receiving such a waiver.

 
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Trump Org. Donates Foreign Profits, But Won’t Say How Much

• 02, 27, 2018
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The Trump Organization said Monday it has made good on the president’s promise to donate profits from foreign government spending at its hotels to the U.S. Treasury, but neither the company nor the government disclosed the amount or how it was calculated.

Watchdog groups seized on the lack of detail as another example of the secrecy surrounding President Donald Trump’s pledges to separate his administration from his business empire.

“There is no independent oversight or accountability. We’re being asked to take their word for it,” said Noah Bookbinder, executive director of Citizens for Responsibility and Ethics in Washington. “Most importantly, even if they had given every dime they made from foreign governments to the Treasury, the taking of those payments would still be a problem under the Constitution.”

Trump Organization Executive Vice President and Chief Compliance Counsel George Sorial said in a statement to The Associated Press that the donation was made on Feb. 22 and includes profits from Jan. 20 through Dec. 31, 2017. The company declined to provide a sum or breakdown of the amounts by country.

Sorial said the profits were calculated using “our policy and the Uniform System of Accounts for the Lodging Industry” but did not elaborate. The U.S. Treasury did not respond to repeated requests for comment.

Watchdog group Public Citizen questioned the spirit of the pledge in a letter to the Trump Organization earlier this month since the methodology used for donations would seemingly not require any donation from unprofitable properties receiving foreign government revenue.

Robert Weissman, president of Public Citizen, said that the lack of disclosure was unsurprising given that the Trump’s family businesses have “a penchant for secrecy and a readiness to violate their promises.”

“Did they pay with Monopoly money? If the Trump Organization won’t say how much they paid, let alone how they calculated it at each property, why in the world should we believe they actually have delivered on their promise?” Weissman said.

Ethics experts had already found problems with the pledge Trump made at a news conference held days before his inauguration because it didn’t include all his properties, such as his resorts, and left it up to Trump to define “profit.” The pledge was supposedly made to ameliorate the worry that Trump was violating the Constitution’s emoluments clause, which bans the president’s acceptance of foreign gifts and money without Congress’ permission.

Several lawsuits have challenged Trump’s ties to his business ventures and his refusal to divest from them. The suits allege that foreign governments’ use of Trump’s hotels and other properties violates the emoluments clause.

Trump’s attorneys have challenged the premise that a hotel room is an “emolument” but announced the pledge to “do more than what the Constitution requires” by donating foreign profits at the news conference. Later, questions emerged about exactly what this would entail.

An eight-page pamphlet provided by the Trump Organization to the House Oversight Committee in May said that the company planned to send the Treasury only profits obviously tied to foreign governments, and not ask guests questions about the source of their money because that would “impede upon personal privacy and diminish the guest experience of our brand.”

“It’s bad that Trump won’t divest himself and establish a truly blind trust, and it’s worse that he won’t be transparent,” said Rep. Elijah Cummings, D-Maryland, ranking member on the House Oversight Committee. He called the Republicans refusal to do oversight, such as subpoena documents, that would shed light on Trump’s conflicts of interest “unconscionable.”
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Greece Enters Final Round of Reform Talks With Creditors

• 02, 27, 2018
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Greece entered a last round of reform talks with creditors Monday, just five months before the country’s massive rescue program ends — and with the government and central bank publicly disagreeing on how to finance the nation after the bailout.

Government officials said the talks with representatives of Greece’s European partners and the International Monetary Fund in Athens would cover privatizations and energy.

But the negotiations were upstaged by a continued spat between Greece’s central bank governor, Yannis Stournaras, and the government over financing policies after the bailout runs out in August. The country will then have to raise money from international investors in bond markets — at a much higher rate than bailout creditors charge.

Stournaras repeated his argument that the government should consider setting up a precautionary credit line from the bailout rescuers that would secure the country — and its banks — cheap funding if needed, particularly as the country’s bonds are still rated well below investment grade. The finance ministry countered that this would create market jitters as to Greece’s ability to finance itself.

“Regardless of intentions, (Stournaras’) position … creates objective doubts regarding the prospects of the Greek economy, increases uncertainty and impedes Greece’s smooth exit from the bailout,” said Franciscos Koutentakis, the ministry’s general secretary for fiscal policy.

Greece signed the first of its three multi-billion euro bailouts in 2010, after it admitted its budget deficit was much higher than initially reported and investors stopped buying Greek bonds.

To secure the funds that kept it solvent, the country has slashed spending and public sector incomes, hiked taxes and extensively reformed its economy.

But the measures worsened a recession that wiped out more than a quarter of the economy and sent unemployment spiraling up by 16 percentage points between 2008 and 2016. The third bailout runs out in August.

Over the past eight months, the country has raised money from bond markets on three occasions through issues that were amply oversubscribed but offered high interest rates to attract investors.

Stournaras argued Monday that the possibility of an official credit line, to be used if needed, “should not be dramatized” as it would lower borrowing costs and “offer security as to state and bank access to financing after the end of the bailout.”

He also warned that the economy would remain under supervision from its European creditors until 75 percent of its debts have been repaid. Presenting the Bank of Greece’s annual report for 2017, Stournaras said economic growth is expected to accelerate to 2.4 percent this year, mostly on the wings of higher tourism receipts and exports.

Also Monday, some 2,000 municipal employees marched through central Athens to protest planned changes in school policy that unions say would threaten jobs in municipally-run kindergartens. Minor scuffles with police broke out outside parliament, but no arrests or injuries were reported.
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Amid Fresh Trump Tension, Negotiators Seek Progress on NAFTA

• 02, 27, 2018
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U.S., Mexican and Canadian negotiators met on Monday seeking to narrow disagreements on how to overhaul the NAFTA trade deal despite renewed signs of tension between Mexico and U.S. President Donald Trump over his planned border wall.

The trade teams began a seventh round of talks on Sunday aiming to finish reworking less contentious chapters of the North American Free Trade Agreement in order to create space to broker agreement on the trickiest subjects.

Still, with a presidential election looming in Mexico in July and U.S. mid-term congressional elections in November, the talks increasingly run the risk of getting entangled in domestic political considerations.

Negotiators are confident that the lesser hurdles will gradually be cleared. But the discussions have again been clouded by the proposed wall along the U.S. southern border that Trump has long touted as a necessity to curb illegal immigration and that he says Mexico must pay for.

Mexico has consistently rejected paying for the wall, and its government had hoped to arrange a meeting between President Enrique Pena Nieto and Trump in the next few weeks. However, a senior U.S. official said at the weekend that plan had been postponed after a phone call between the two soured over the wall earlier this month.

Used to distractions

The trade negotiators have become used to such distractions, but the talks are increasingly centering on U.S. demands that officials say can be resolved only at the top political level.

Mexico’s government has not commented officially on the derailment of the planned meeting, but Juan Pablo Castanon, head of the powerful CCE business lobby, was less reticent as he took stock of the unfolding NAFTA negotiations in Mexico City.

“Obviously, the cancellation of the Mexican president’s trip to the United States is an important element in the negotiations: it’s politics that can help us resolve the technical issues we’re moving forward on.”  Castanon said.

The NAFTA talks were launched last year after Trump said the 1994 agreement should be overhauled to better favor American interests or Washington would quit the accord.

Phone call fallout

One former Mexican official still familiar with the process said the government was concerned that the fallout from the Trump-Pena Nieto phone call could weigh on the atmosphere at the talks, in spite of hopes that several chapters may be finished. 

Castanon of the CCE said measures on e-commerce, telecommunications and sanitary standards for agricultural products were almost completed, and others close to the talks believe the energy chapter could also conclude.

Officials do not anticipate major breakthroughs on the most intractable proposals during the latest round of talks in Mexico City, which are due to run until March 5.

U.S. demands range from changes to automotive content origin rules and dispute resolution mechanisms, to imposing a clause that could automatically kill NAFTA after five years.

Agriculture, rules of origin, labor and regulatory practices were among the issues due to be discussed on Monday, one day before chief negotiators return to the fray.

Auto components 

The Trump administration wants NAFTA rules of origin changed to make automakers source more parts from the region and specifically the United States, a major sticking point that the industry itself opposes.

The government is concerned that a lack of progress on the issue could hurt the renegotiation, the former official said.

In a sign of movement, the U.S. official leading the auto content negotiations was called back to Washington from Mexico for consultations on Monday, U.S. and Mexican officials said.

One official said the negotiator went back to talk to U.S. automakers and U.S. Trade Representative Robert Lighthizer Seeking to break the deadlock, the Mexican government has said it would put forward a proposal on rules of origin at this round, but a Mexican official said on Monday no new ideas had been presented so far.

Supply management

There was little sign of compromise on other thorny issues early on, with a senior Canadian agriculture official pushing back against U.S. demands to dismantle Canadian protections for the dairy and poultry sectors known as supply management.

“When it comes to supply management, we believe there can be no concession,” said Jeff Leal, the minister of agriculture, food and rural affairs for the province of Ontario.
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