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For Consumers, Fed’s Expected Rate Hike Is Unlikely To Cause Shock And Awe

By Jim Puzzanghera, Los Angeles Times (TNS)

WASHINGTON — Federal Reserve policymakers are expected to end months of speculation Wednesday and raise a key interest rate for the first time in nearly a decade.

But for average Americans hoping for noticeably higher returns on their savings or fearing a sharp increase on credit card, auto loan or mortgage rates, the waiting is likely to continue.

“It’s much like that first dusting of snow,” Greg McBride, chief financial analyst for financial information website Bankrate.com, said of the much-anticipated Fed rate hike. “That’s not what cancels school and messes up traffic. But it’s the signal that winter’s coming.”

Fed Chair Janet Yellen and her colleagues would be sending a symbolically powerful signal that they believe the economy finally has recovered enough from the Great Recession to start reversing seven years of holding the central bank’s benchmark short-term interest rate near zero.

But the increase in the so-called federal funds rate this week is likely to be minuscule: just 0.25 percentage point. The next similarly small move probably would not come until March or even June.

Yellen has stressed that the Fed plans to move slowly so the rate, which is used to set terms for many consumer and business loans, would remain low for a while. Low rates encourage consumers and businesses to spend rather than save, which boosts economic growth.

The small increase — coupled with the lingering effects of the central bank’s unprecedented stimulus efforts — would increase the typical delay it takes for consumers to feel any effect from a rate change, experts said. This time, the lag is expected to be lengthier because the rate has been so low for so long and the Fed is going to inch it up gradually.

“The rate increase is likely to be tiny, and I’m not sure it’s going to have an effect that will shock and awe anybody,” said James Chessen, chief economist at the American Bankers Association.

The Fed’s actions also get diluted as they flow through the financial system, particularly to the savers who have been hardest-hit by the near-zero interest rate. Savers shouldn’t anticipate a bump in their balances any time soon because banks, squeezed by low rates and holding record-high deposits, aren’t eager to start paying out more to their customers.

The federal funds rate applies to short-term lending between banks from the reserves they hold at the Fed. But the rate affects other borrowing costs and has become a benchmark for savings accounts, certificates of deposit, credit cards, auto loans, small business loans and home equity lines of credit.

The federal funds rate has less of a direct effect on longer-term loans, particularly mortgage rates. Those rates generally have already risen in anticipation of Fed action.

The last time the Fed began a period of rate boosts was in 2004, when it made a similar 0.25 percentage point move. It increased rates 16 more times over the next two years.

©2015 Los Angeles Times. Distributed by Tribune Content Agency, LLC.

Photo: Michael Daddino via Flickr

 

In Search Of A Way To Defuse The Debt Limit Brinkmanship

By Jim Puzzanghera, Los Angeles Times (TNS)

WASHINGTON — As another showdown approaches over raising the nation’s debt limit, people across the political spectrum are looking for ways to defuse an unusual budgetary mechanism that in recent years has ignited frequent congressional brinkmanship and threatened the shaky U.S. economy.

“I would say, please take the gun out of their hands,” said Steve Bell, a former Republican Senate staffer who now directs economic policy for the Bipartisan Policy Center think tank.

Last week, Treasury Secretary Jacob J. Lew warned Congress that it needed to increase the $18.1 trillion debt limit by Nov. 3 or risk a federal government default.

After that point, the Treasury would no longer be able to borrow to pay bills and would have only $30 billion in cash to pay daily bills, which can total as much as $60 billion.

“Operating the United States government with no borrowing authority, and with only the cash on hand on a given day, would be profoundly irresponsible,” Lew wrote to House and Senate leaders.

In a time of large budget deficits and deep partisan divides, the recurrent need for Congress to increase the statutory ceiling on government debt has become another crisis point to be used for political advantage.

The debt limit has more than doubled since 2007, and total U.S. debt is equal to the nation’s entire annual economic output.

Since taking control of the House in 2011, Republicans have tried to tie increases in the debt limit to future government spending cuts even though the borrowing is for expenditures that Congress already has authorized.

But unlike many other Washington disputes, the debt limit can have quick and costly real-world implications.

A 2011 standoff, resolved at the last minute before a potential default, led Standard & Poor’s to issue the first-ever downgrade to the nation’s AAA credit rating. The move caused the Treasury Department to pay an additional $1.3 billion in borrowing costs for that year alone, according to the Government Accountability Office.

Two years later, the agency said another debt limit clash increased the Treasury’s borrowing costs by $38 million to $70 million as investors avoided buying bonds the government might not be able to repay.

For those reasons, the GAO recommended this summer that Congress consider alternatives to the debt limit.

Around the same time, two respected Washington veterans at the Bipartisan Policy Center — former Sen. Pete Domenici of New Mexico, a Republican, and former Federal Reserve Vice Chairwoman Alice Rivlin, a Democrat — proposed automatically increasing the debt limit when Congress passes a budget.

Some congressional Democrats, including Sen. Barbara Boxer of California, have called for the law to be changed so the debt limit would increase unless Congress voted to block it.
Even some Republicans have called for changes.

A bill sponsored by Rep. Tom McClintock, R-Calif., would allow the Treasury Department to exceed the debt limit to pay principal and interest on government bonds as well as to send out Social Security checks.

“It’s an absolute guarantee that the debt of the United States will be honored even if there is complete political gridlock in Washington,” he said of the Default Prevention Act, which could get a vote in the House this week.

At one time, Congress controlled federal debt by authorized borrowing for specific purposes, such as building the Panama Canal. The funding needs of World War I led to more flexibility for the Treasury to borrow and limits on specific types of debt.

In 1939, Congress gave the Treasury even more leeway by eliminating the specific limits and settling on an overall ceiling of $45 billion on total federal debt.

For decades, the debt limit sat harmlessly in U.S. law like a human appendix, increased with little controversy whenever needed, said Neil H. Buchanan, author of the 2013 book “The Debt Ceiling Disasters: How the Republicans Created an Unnecessary Constitutional Crisis and How the Democrats Can Fight Back.”

“If it were gone, it would be fine. But it was no problem to have it,” said Buchanan, an economist and law professor at George Washington University.

The debt limit rose to $300 billion at the end of World War II and has been adjusted 95 times since 1940, nearly all of them increases.

In the 1980s, it began to be used as political leverage for spending and deficit reduction deals as congressional Democrats clashed with President Ronald Reagan. When Republicans wielded it against President Bill Clinton in the mid-1990s, the Treasury developed so-called extraordinary measures to stave off default by temporarily creating more borrowing authority through the juggling of some government investments.

Most other countries don’t have a debt limit. An increase in borrowing is incorporated in their spending bills. Australia enacted a debt limit in 2009, but raising it became so contentious that the limit was eliminated four years later.

Some people would like to see the U.S. do the same thing.

“To me, the debt limit has become a politically pernicious event,” Bell said. “In a time of interconnected and fragile markets, it is a dangerous thing.”

A U.S. government default would reverberate throughout global markets because the value of 90-day Treasury securities are the benchmark for a slew of complex financial products, such as derivatives and credit default swaps.

A 2013 survey of academic economists by the University of Chicago found that 84 percent agreed that “a separate debt ceiling that has to be increased periodically creates unneeded uncertainty and can potentially lead to worse fiscal outcomes.” Only 3 percent disagreed.

“It’s being used as a political nuclear weapon,” said Rep. Peter Welch, D-Vt., who advocates eliminating the debt limit.

“In the past the out-of-power party would do some grandstanding to make a point, but at the end of the day, there would be a bipartisan vote to avert default,” he said. “That changed in 2011 when some members of Congress were willing to send us into default.”

McClintock said Republicans don’t want a default, but the debt limit is “the equivalent of a national credit card limit” that Congress needs to review.

“The times being what they are, there will be great controversy attached to the review of policies that are driving our debt,” McClintock said.

He figures that by ensuring the U.S. doesn’t default on payments to those holding Treasury securities, as his bill would do, “we would give Congress the calm it needs to negotiate the changes that have to be made to bring our debt under control.”

But others said that the failure of the U.S. to pay all of its outstanding bills would constitute a default, which would risk financial market turmoil and another possible credit rating downgrade.

In a detailed analysis, the Bipartisan Policy Center estimated that the Treasury would run out of money to pay all of its bills between Nov. 10 and 19.

“That could be a dicey, uncharted situation,” said Shai Akabas, the center’s associate director of economic policy.

Photo: What are we going to do about the debt limit? photosteve101/Flickr

Soaring Student Loan Burden Poses Risk To Economic Growth

By Jim Puzzanghera, Los Angeles Times, (TNS)

WASHINGTON — Jorge Villalba was a construction worker when the housing market began slowing in 2005, so the Glendale, Calif., resident changed jobs and decided to invest in his future by going to college.

So far, the investment hasn’t paid off.

Villalba, 34, owes $158,000 in student loans for his four-year degree in multimedia, 3-D animation and graphic design at ITT Technical Institute. He isn’t earning enough to keep up with the payments, so the amount keeps rising with interest.

He figured he’d get a great job and pay off the loans.

“It hasn’t happened that way,” said Villalba, who is married with two young children but can’t afford to move from their cramped one-bedroom apartment.

Students around the country — and often their parents — have racked up so much college debt since the recession that it now threatens the nation’s economic growth.

The debt weighs down millions of Americans who might otherwise buy homes or start businesses. And the financial horror stories of debt-saddled students, combined with continued increases in tuition, could deter others from attending college and could produce a less-educated workforce.

“The impact on future (economic) growth could be quite significant,” said Cristian deRitis, who analyzes consumer credit economics for Moody’s Analytics.

The amount of outstanding student loans has skyrocketed 76 percent to almost $1.2 trillion since 2009 as college costs have shot up and graduates have had difficulty finding good-paying jobs.

Before the Great Recession, total outstanding student loans ranked well below mortgages, auto loans, credit cards and home equity lines of credit as sources of household debt. Now it trails only mortgage debt, according to the Federal Reserve Bank of New York.

About 40 million consumers have at least one student loan, and the average debt was $29,000 last year, according to credit reporting firm Experian.

Worse for students, delinquency rates on college loans are rising even as they decline for other types of household debt.

The New York Fed found that 11.5 percent of student loans were at least three months delinquent as of June 30 — more than 3 percentage points greater than any other loan category. Unlike other debt, student loans can’t be discharged in bankruptcy.
So it’s not surprising that when Gallup asked parents this year to name their biggest financial worry, paying for their children’s college education topped the list.

“We’re essentially running a higher-education system here that is not sustainable,” said Anthony Carnevale, director of the Center on Education and the Workforce at Georgetown University. “It’s kind of a runaway train.”

The broad ramifications for the economy and the higher-education system have led some presidential candidates to propose ways to make college more affordable and reduce the debt burden, such as through refinancing at lower interest rates.

“Think of the millions of Americans being held back by their student debt,” former Secretary of State Hillary Rodham Clinton told the Democratic National Committee’s summer meeting in August. “They cannot start a business, they cannot buy a house, they cannot even get married because of the loans hanging over their heads.”

The Financial Stability Oversight Council, a panel of top federal regulators that watches for emerging economic threats, warned in its annual report this year that “high student-debt burdens could impact household consumption and limit access to other forms of credit, such as mortgages.”

Because most student loans are backed by the federal government, a rash of defaults would not trigger another financial crisis the way the mortgage meltdown did, deRitis said.

But taxpayers could take a hit, as would the economy.

“This is something that’s going to unwind over time,” he said, noting that the improving economy has caused the growth of student loan debt to ease. “It’s going to be a long, slow burn.”

Last year, researchers at the Federal Reserve Bank of Boston found that student debt lowered the likelihood of homeownership for a group of students who attended college in the 1990s.

Research this year by the New York Fed suggested that “a substantial portion” of the increase in young people living with their parents “can be explained by increasing student debt balances.”

To deal with the issue, Clinton and Sen. Bernie Sanders, I-Vt., another Democratic presidential candidate, have made large increases in federal funding the centerpieces of their college affordability plans.

“You can win votes by saying we’re going to put a degree in every pot,” Georgetown’s Carnevale said, “but we’ve got to get down the cost.”

Average tuition and fees at public four-year colleges and universities were $9,139 in the latest school year, according to the College Board. That was up 66 percent from a decade earlier as governments hit hard by the recession cut back on college funding.

Over the same period, tuition and fees at private, nonprofit colleges and universities rose 49 percent on average to $31,231 as the schools incurred major costs in upgrading dormitories and building health clubs and other facilities to compete for students from wealthy families.

Students seeking lower-cost alternatives increasingly have turned to community colleges, where average tuition and fees rose 53 percent during the last decade.

That trend risks spreading the student loan debt problem to schools long seen as the only affordable higher education option for low-income students, said Cecilia Rios-Aguilar, director of UCLA’s Higher Education Research Institute.

Meanwhile, wages have stagnated in the wake of the Great Recession. The average starting salary for a graduate with a bachelor’s degree was $48,127 last year, down from $49,224 in 2008, according to the National Association of Colleges and Employers.

For-profit schools, such as ITT Technical Institute and Corinthian Colleges Inc., have exacerbated the problem. They lured students, such as Villalba, who were looking for better career opportunities in a down economy.

Villalba said most companies don’t value his degree from ITT.

He’s earning $15 an hour in a graphic design job and trying to figure out how to pay off his student loans, including some private ones with interest rates of about 20 percent.

He’s hoping for help from proposals to allow student loans to be refinanced at lower rates.

“I’m looking at 30 to 40 years to pay it off,” Villalba said of his debt. “It’s a huge burden.”

Photo: Jorge Villalba poses for a portrait on Sept. 3, 2015 in Encino, Calif. Villaba is struggling to pay off student loan debt. Brian van der Brug/Los Angeles Times/TNS

U.S. Employers Add 173,000 Jobs In August; Unemployment Rate Falls To 5.1 Percent

By Jim Puzzanghera, Los Angeles Times (TNS)

WASHINGTON — Job growth unexpectedly slowed last month to a modest 173,000, but the unemployment rate fell to a post-Great Recession low and average wages posted their biggest gain since January, the Labor Department said Friday.

The report sent mixed messages to Federal Reserve policymakers, who are trying to decide if the labor market and, more broadly, the economy are strong enough to handle the first increase in a key interest rate since 2006.

The low headline number was well below analyst expectations for 223,000 net new jobs, and down from July’s strong 245,000 figure.

But growth for June and July was revised up by a total of 44,000 net new jobs. That means the economy has added an average of 221,000 jobs over the last three months.
Because of seasonal adjustment issues, August figures have been revised up significantly in recent years as well.

Knowing that and combined with the other positives in the report, Friday’s data could be enough for Fed officials to determine later this month that the labor market is ready to handle a small increase in the central bank’s benchmark short-term interest rate.

The unemployment rate ticked down 0.2 percentage point in August to 5.1 percent, the lowest since April 2008. The rate now is nearly half what it was at its peak during the Great Recession.

Part of the reason for last month’s decline was about 41,000 people dropped out of the labor force. The percentage of adults participating in the labor force remained steady at 62.6 percent, the lowest level since 1977.

But wage growth, which has been sluggish during the recovery, is showing signs of accelerating. Average hourly earnings jumped 8 cents last month to $25.09, the largest gain since January. That followed a strong 6-cent increase in July.

For the year ended Aug. 31, earnings are up 2.2 percent, which is well above the low inflation rate.

Fed officials have been looking for signs of improving wage growth, which would show that the labor market is strengthening and also would add to inflationary pressures.

Friday’s report is the last major release of economic data before Fed policymakers meet on Sept. 16-17 to decide whether to raise the federal funds rate from the near 0 percent level it has been since late 2008.

Many analysts had expected the Fed would raise the rate by .25 percentage point at the September meeting, but roiling global financial markets in recent weeks have led to concerns an interest rate hike by the world’s leading central bank could add to the turmoil.

Shortly before the jobs report was released, a top Fed policymaker said Friday that financial market volatility should not delay a rate hike.

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, Va., said in a speech to a local retail merchants group that “the Fed has a history of overreacting to financial market movements that seem unconnected to economic fundamentals.”

Lacker, a voting member of the policymaking Federal Open Markets Committee, noted the unemployment rate “has fallen more rapidly than many people expected” from its Great Recession peak of 10 percent in October 2009.

And with the “slow but steady” economic growth and inflation showing signs of picking up, it’s time for the Fed to start raising its benchmark interest rate, he said.

“I am not arguing that the economy is perfect, but nor is it on the ropes, requiring zero interest rates to get it back into the ring,” Lacker said. “It’s time to align our monetary policy with the significant progress we have made.”

(c)2015 Los Angeles Times. Distributed by Tribune Content Agency, LLC.

Photo: Samuel Huron via Flickr

Potential For A Bipartisan Bill On Net Neutrality Emerges In Congress

By Jim Puzzanghera, Los Angeles Times (TNS)

WASHINGTON — Rick Boucher knows as well as anybody that net neutrality is the type of complex technology topic that Congress finds difficult to handle even when Democrats and Republicans are getting along.

But the former 14-term House member, a longtime player on Internet policy who now heads a telecommunications industry trade group, is optimistic that the controversial Internet issue could be a surprising source of compromise in a time of partisan gridlock.

“Each side can give the other the thing it wants the most,” Boucher, a well-respected Democrat who is honorary chairman of the Internet Innovation Alliance. “This is an optimal moment to legislate.”

Both political parties have a major reason to seek a permanent legislative solution after the Federal Communications Commission last month enacted tough new regulations for online traffic.

Leading Republicans want to limit the broad authority the FCC asserted to police broadband after classifying it as a more highly regulated utility-like service under Title Two of the Communications Act.

And to do that, the GOP lawmakers reversed long-standing opposition to the need for net neutrality regulations and have proposed codifying the meat of the FCC’s order: prohibitions on Internet service providers from blocking, slowing, or selling priority delivery of content to consumers.

Key Democrats said they’re willing to work on a bill that could limit the FCC’s powers because enshrining net neutrality regulations into law would avoid the fear that they could be overturned by federal judges — which happened twice before — or a future Republican-led FCC.

“Democrats would like to lock net neutrality into a litigation-proof statute. And Republicans really want to eliminate Title Two (authority). So that’s a good starting point,” said Paul Gallant, a telecommunications policy analyst with Guggenheim Securities in Washington.

Congressional hearings last week showed the potential for a bipartisan deal, as well as the passions of both sides, which might need to cool before serious negotiations could take place.

The Republican bill is sponsored by Senate Commerce Committee Chairman John Thune (R-SD), and House Energy and Commerce Committee Chairman Fred Upton (R-MI), two veteran lawmakers with the clout to get legislation approved.

It tries to appease net neutrality supporters by enshrining the FCC’s new prohibitions into law but appeals to the industry by eliminating the Title Two classification for broadband, which would limit the agency’s ability to make new regulations.

The top Democrat on each of those panels reiterated publicly that they would consider a deal if the FCC retained more authority.

“I remain open to a truly bipartisan congressional action provided that such action fully protects consumers, does not undercut the FCC’s role, and leaves the agency with flexible, forward-looking authority to respond to the changes in this dynamic broadband marketplace,” Senator Bill Nelson (D-FL), said at a congressional hearing last week.

Fellow Senate Democrats Joe Manchin of West Virginia and Brian Schatz of Hawaii also said they were open to legislation.

Two leading industry trade groups — the National Cable & Telecommunications Association and CTIA-The Wireless Association — have expressed enthusiasm for the Republican net neutrality bill.

Industry executives have said they would prefer a legislative solution, even though they warned that a legal challenge is coming that could leave the FCC’s regulations in limbo for years. On Monday, the U.S. Telecom Association trade group and a small Texas company, Alamo Broadband Inc., each sued the FCC in separate U.S. District Courts.

“Our hope really is ultimately the uncertainty will create a legislative solution that would be, I think, a nice outcome and an appropriate outcome given all the constituencies that are involved,” Michael J. Angelakis, chief financial officer at Comcast Corp., told an investor conference this month.

Boucher began pushing for net neutrality legislation in 2006 along with other Democrats, including then Senator Barack Obama. But their efforts were stymied by strong opposition from the telecom industry and Republicans, who said regulations were not needed because there were no widespread abuses.

Boucher now works as a telecom industry lawyer and at the Internet Innovation Alliance, which includes AT&T Inc. and other companies opposed to the FCC’s rules. He said Republican willingness to enact net neutrality restrictions is a “major victory” for Democrats, one that would avoid the uncertainty of a legal challenge.

To get a deal, Republicans would need to compromise more by allowing the FCC to have continued authority over broadband, though less than what comes with Title Two oversight, he said.

But many Democrats, including Obama, as well as public interest groups, pushed the FCC to classify broadband for tougher oversight under Title Two, so giving that up would be difficult.

“There’s still a big gap between what the FCC did and what Republicans are proposing,” said Chris Lewis, vice president for government affairs at digital rights group Public Knowledge. “They’re proposing some bright-line rules but they’re also proposing to limit the FCC’s authority to adjust broadband protections as technology changes.”

Boucher said Democrats needed to step back from the victory of the FCC vote and realize the rules could be tied up in court for three years or more.

“It’s a very tenuous foundation on which these net neutrality regulations rest, and I think Democrats need to get a fuller sense of that before there will be a fuller participation in a bipartisan process,” he said.

Some Republicans don’t want to compromise on the issue at all.

Representative Marsha Blackburn (R-TN), has proposed legislation that would block the FCC’s regulations and prohibit the agency from issuing new ones. The bill has 43 Republican co-sponsors.

After listening to FCC Chairman Tom Wheeler, a Democrat, and Republican member Ajit Pai spar over net neutrality during the hearings last week, some lawmakers wondered whether a compromise could be reached.

“If you can’t come together, how in the world do you expect us to work together?” Manchin asked. Nelson suggested the controversy needed to die down a bit.

Gallant agreed.

“Both sides are still in full battle mode coming out of the FCC vote and these hearings,” he said. “As time passes, I think both sides will see there’s a win-win if it’s approached the right way.”

Photo: Free Press via Flickr

Net Neutrality Regulations Released By FCC; Industry Lawsuit Expected

By Jim Puzzanghera, Los Angeles Times (TNS)

WASHINGTON — The Federal Communications Commission on Thursday publicly released the details of its new net neutrality regulations, which now will be pored over by broadband Internet service providers as they prepare for an expected legal challenge to the rules.

The 400-page order enacting the regulations was posted on the FCC’s website two weeks after it was approved on a partisan 3-2 vote by the Democratic-controlled commission.

The rules, crafted by FCC Chairman Tom Wheeler, change the legal classification of wired and wireless broadband, treating it as a more highly regulated telecommunications service in an attempt to ensure that providers don’t discriminate against any legal content flowing through their networks to consumers.

The decision to reclassify broadband under Title 2 of the telecommunications law, which has applied to conventional telephone service, was controversial even though Wheeler promised a light, modernized approach.

The FCC’s action was strongly opposed by AT&T Inc., Verizon Communications Inc., and other broadband providers as well as most Republicans.

AT&T hinted at a likely legal challenge of the regulations Thursday.

“Unfortunately, the order released today begins a period of uncertainty that will damage broadband investment in the United States,” said Jim Cicconi, the company’s senior executive vice president of external and legislative affairs.

“Ultimately, though, we are confident the issue will be resolved by bipartisan action by Congress or a future FCC, or by the courts,” he said.

Matt Wood, policy director of Free Press, a digital rights group that strongly supported tough net neutrality rules, said release of the order would end “fear-mongering” by opponents of the FCC’s action.

“Now that Congress and everyone else can read the rules, we can continue to have a debate about protecting free speech on the Internet,” he said.

“But we can dismiss the ridiculous claims from the phone and cable companies and their fear-mongering mouthpieces,” he said. “This is not a government takeover of the Internet or an onerous utility-style regulation.”

The actual new regulations take up just eight pages in the FCC’s order.

The main provisions prohibit broadband providers from blocking or slowing delivery of any lawful content for any reason other than “reasonable network management” and ban so-called paid prioritization, which would involve offering websites faster delivery of their content to consumers for a price.

The FCC could waive the ban on paid prioritization if a broadband provider or company could demonstrate it “would provide some significant public interest benefit and would not harm the open nature of the Internet.”

Most of the order was an explanation of the new regulations and the reasons for enacting them in hopes of withstanding a court challenge. Two previous FCC attempts to enact net neutrality rules were largely overturned by federal judges.

The last 87 pages of the order are statements from the five commissioners, including a 64-page dissent from Republican Commissioner Ajit Pai.

Pai and the agency’s other Republican commissioner, Michael O’Rielly, as well as key GOP members of Congress, unsuccessfully pushed Wheeler to release the entire proposal before the Feb. 26 vote.

But Wheeler did not, noting it was longstanding agency practice not to release draft proposals until they were approved by the commission.

In the two weeks since the vote, agency lawyers have been preparing the final version of the order.

It now will be published in the Federal Register in the next few weeks. Most of the rules will go into effect 60 days after that publication.

Photo: Federal Communications Commission staffers listen to statements being read during the FCC vote on net neutrality on Thursday, Feb. 26, 2015, in Washington, D.C. (Brian Cahn/Zuma Press/TNS)

Obama Says He Learned Of Clinton’s Private Emails From News Reports

By Jim Puzzanghera, Los Angeles Times (TNS)

WASHINGTON — President Barack Obama said he first learned from news reports that Hillary Rodham Clinton used a private email account while serving as his secretary of State.

“The policy of my administration is to encourage transparency, which is why my emails, the BlackBerry I carry around, all those records are available and archived,” Obama said in excerpts of an interview with CBS News that aired Sunday. “I’m glad that Hillary’s instructed that those emails about official business need to be disclosed.”

Obama’s first comments on the controversy came as a leading Democrat, Senator Dianne Feinstein of California, said Clinton should speak publicly about Clinton’s emails or risk damaging her potential 2016 presidential campaign.

“She is the leading candidate, whether it be Republican or Democrat, to be the next president and I think she needs to step up and come out and state exactly what the situation is,” Feinstein said on NBC’s Meet the Press. “I think from this point on the … silence is going to hurt her.”

Clinton’s only comment came on Twitter last week: “I want the public to see my email. I asked State to release them. They said they will review them for release as soon as possible.”

The State Department is reviewing 55,000 pages of her emails to determine whether they can be released to the public.

Feinstein added that the regulations on personal email use were unclear during Clinton’s tenure as secretary of State, from 2009 to 2013.

Colin Powell, who served as secretary of State from 2001 to 2005 under President George W. Bush, told ABC’s This Week with George Stephanopoulos that he didn’t retain any of the work emails he sent from a personal account during his tenure.

A federal law enacted in November requires the preservation of work emails from private accounts of government officials.

The Clinton controversy dominated discussion on Sunday TV talk shows, with Democrats, including Feinstein, defending her use of private email as legal.

The New York Times reported last week that Clinton used a private email account for her work messages. Then The Associated Press reported that Clinton had exclusive control over her email through a private server linked to her New York home.

A key Republican on Sunday reiterated his concerns that Clinton has not turned over all relevant emails regarding her role in the U.S. response to the fatal 2012 attack on U.S. facilities in Benghazi, Libya.

The State Department has turned over some emails to the House Select Committee investigating the Benghazi attack, which left four Americans dead, including the ambassador. But the panel’s chairman, Rep. Trey Gowdy (R-SC), said on CBS’ Face the Nation that “there are gaps of months and months and months” between emails.

There were no emails from a trip Clinton made to Libya in October 2011 in which she was photographed en route in sunglasses looking at her handheld device — a picture that has been published in recent days with articles about the controversy, Gowdy said.

“It strains credibility to believe that if you’re on your way to Libya to discuss Libyan policy that there’s not a single document that’s been turned over to Congress,” he said.

Gowdy’s committee said last week that it had subpoenaed Clinton’s personal emails related to the attack.

Photo: Hillary Rodham Clinton speaks at the Lead On Watermark Silicon Valley Conference for Women on Tuesday, Feb. 24, 2015, in Santa Clara, Calif. (Karl Mondon/Bay Area News Group/TNS)

U.S. Adds Surprisingly Strong 295,000 Jobs, But Wage Growth Slows

By Jim Puzzanghera, Los Angeles Times (TNS)

WASHINGTON — U.S. employers shook off some severe winter weather and added a surprisingly strong 295,000 net new jobs in February while the unemployment rate fell to a post-Great Recession low of 5.5 percent, the Labor Department said Friday.

The jump in job creation exceeded economists’ forecasts and was an improvement over January’s 239,000 jobs. But the increase was offset somewhat by a downward revision in December’s and January’s figures by a total of 18,000 jobs.

Wage growth continued to be slow last month. Average hourly earnings rose by just 3 cents to $24.78 after an encouraging 12-cent increase in January.

For the 12 months ended Feb. 28, wages rose by only 2 percent, well above the low inflation rate but not nearly the level economists would like to see coming out of a deep recession.

Part of the reason the unemployment rate fell to its lowest level since May 2008 was that about 178,000 job-seekers dropped out of the labor force. That caused the labor force participation rate to tick down by a tenth of a percentage point to 62.8 percent, near a more-than-three-decade low.

Still, job growth has been strong over the past year. February was the 12th straight month in which the nation added at least 200,000 net new jobs, the best streak since 1994-95.

Job growth has averaged 266,000 during that period. The pace has improved recently, with the economy averaging 288,000 net new jobs from December through February.

“There has been no significant impact from the winter weather during the month,” said Gad Levanon, managing director for economic outlook and labor markets at the Conference Board. “As expected, the lower oil-price level is beginning to shrink employment in the mining industry, but it is not large enough to make a significant dent in the total number of jobs.

Employment by oil and gas extraction companies fell by 9,300 jobs in February from the previous month, the Labor Department said.

The construction industry added 29,000 net new jobs, while factory payrolls increased by 8,000. Restaurants and bars added 59,000 net new jobs, and firms offering professional and business services increased their payrolls by 51,000.

Health care providers added 24,000 net new jobs.

Some economists were concerned that severe winter weather last month might have slowed the labor market recovery. A major snowstorm hit the Northeast in mid-February, the same week that the Labor Department surveys households and employers for the jobs report.

Initial jobless claims rose last week to 320,000 — the highest level since May — and payroll firm Automatic Data Processing reported this week that private-sector job growth slowed to 212,000 in February from 250,000 the previous month.

Despite the winter weather, nearly 70 percent of respondents in a survey by the nonpartisan Pew Research Center said they believed the job situation had begun recovering. Less than half thought that was the case in September 2013.

But slow wage growth remained a big concern. About 30 percent of poll respondents said their personal finances had yet to recover from the Great Recession.

AFP Photo/Andrew Burton

Consumer Spending Rose In January After Adjusting For Low Gas Prices

By Jim Puzzanghera, Los Angeles Times (TNS)

Consumer spending bounced back in January after taking into account sharply lower gas and energy prices, the Commerce Department said Monday.

Overall spending actually fell for the second straight month, the first time that’s happened since the Great Recession. But economists said the decline was misleading because it was caused by the steep decline in energy prices.

When adjusted for inflation, which has been low as oil prices have plunged, consumer spending actually rose 0.3 percent in January, the Commerce Department said.

The increase in real spending followed a 0.1 percent decline in December.

Personal income rose 0.3 percent in January, the same as in December, although economists had been expecting a 0.4 percent increase.

“The consumer is stepping off the new year at a fast clip, and where the consumer goes, the broader economy is sure to follow,” said Chris Rupkey, chief financial economist at Union Bank in New York.

Not taking into account inflation, consumer spending declined by 0.2 percent in January after dropping 0.3 percent in December. The last time spending fell for two straight quarters was in early 2009.

But spending on gas, heating oil and other energy products are included in the figure and those costs have fallen sharply.

The price index for energy goods and services fell 10.4 percent in January, the seventh straight monthly drop and double December’s 5.2 percent decline, the Commerce Department said.

The broader price index for personal consumption expenditures, which is the Federal Reserve’s preferred inflation gauge, rose just 0.2 percent in the 12 months ended Jan. 31.

The Fed wants inflation to increase 2 percent annually.

Excluding volatile energy and food prices, the annual inflation rate through January was 1.3 percent.

(c)2015 Los Angeles Times, Distributed by Tribune Content Agency, LLC

Image: Philippe Huguen / AFP

FCC Tightens Internet Oversight With New Net Neutrality Rules

By Jim Puzzanghera, Los Angeles Times (TNS)

WASHINGTON — Federal regulators dramatically expanded government oversight of the Internet, installing the once-arcane concept of net neutrality as a guiding doctrine for broadband networks that have become essential to everyday life.

To ensure the uninhibited flow of data online, the Federal Communications Commission voted 3-2 along party lines Thursday to reclassify broadband providers as more highly regulated utilities.

The increasingly shrill debate in the last year over network neutrality — the idea that all legal content be treated equally online — has raised more profound issues of free speech, privacy, innovation, capitalism and the role of government in the 21st century.

“The Internet is the most powerful and pervasive platform on the planet. It’s simply too important to be left without rules and without a referee on the field,” said FCC Chairman Tom Wheeler, the architect of the agency’s plan.

The new rules prohibit such companies as AT&T Inc., Time Warner Cable Inc. and Verizon Communications Inc. from slowing Internet speeds for some content such as video streams, selling faster lanes for delivering other data or otherwise discriminating against any legal online material.

Wheeler promised a modernized, light-touch regulatory approach that would exempt broadband service from many of the tougher provisions, particularly rate regulation, permitted by its new designation.

The partisan divide in the Democratic-controlled FCC reflected strong opposition from telecom companies and conservatives worried about government interference with a system that appears to be working well for all sides so far.

“Americans love the free and open Internet. We relish our freedom to speak, to post, to rally, to learn, to listen, to watch, and to connect online,” said Ajit Pai, one of the FCC’s two Republicans. “So it is sad … to witness the FCC’s unprecedented attempt to replace that freedom with government control.”

Telecom firms criticized the vote as an unwarranted government intrusion that could scare away investors and slow network expansion. They’ve promised to challenge the regulations in court, which could take at least three years to decide. The rules will go into effect 60 days after they are published in the coming weeks.

“The FCC has taken us in a distressing direction,” said Michael Powell, president of the National Cable & Telecommunications Association trade group, who called for Congress to overrule the FCC with more restrained net neutrality regulations.

“We must now look to other branches of government for a more balanced resolution,” he said.

While telecom executives and Republican politicians blasted Wheeler’s plan, it was cheered by Internet firms, public-interest advocates, and Democrats.

Wheeler and the FCC’s other two Democratic members — Mignon Clyburn and Jessica Rosenworcel — received a standing ovation at the start of the meeting by much of a capacity crowd filled with activists who had worked years to enact strong net neutrality regulations.

Apple Inc. co-founder Steve Wozniak, who was in the packed audience at FCC headquarters, suggested that net neutrality embodies the concerns about a consolidating broadband industry that leaves many customers with little choice in carriers.

Wozniak said it takes him seven hours to download a movie on iTunes because he has no broadband access at his home in the wealthy Silicon Valley town of Los Gatos. That, he said, showed the power of broadband network owners.

“Water is essential. Electricity is essential,” Wozniak said in an interview. “These days broadband has become essential.”

Veena Sud, a TV producer, told the FCC that the Internet was key to finishing her series, The Killing, which began in 2011 but was canceled after two seasons. Netflix helped provide financing for a third season on AMC and then aired the show’s final season online.

“We told some of our best stories, our toughest, most heartbreaking ones, in those last two seasons of the show — stories that never would have been on the air had it not been for the open Internet,” said Sud, a member of the Writers Guild of America, West.

Hollywood’s creative ranks — the WGA, producers and entrepreneurs who built Amazon.com, Netflix and thousands of YouTube video channels — have lobbied for the increased freedom to create and distribute content without a media company go-between.

Net neutrality regulations would prohibit broadband providers from favoring its own content over those of competitors, such as charging fees for faster delivery that could squeeze out smaller competitors.

But broadband providers and opponents of Wheeler’s oversight said there has been no attempt to create so-called toll lanes on the Internet. They said the FCC is going too far in increasing regulation to address a problem that doesn’t exist.

“We have never argued there should be no regulation in this area, simply that there should be smart regulation,” said Jim Cicconi, AT&T’s senior executive vice president for external and legislative affairs.

“What doesn’t make sense, and has never made sense, is to take a regulatory framework developed for Ma Bell in the 1930s and make her great-grandchildren, with technologies and options undreamed of 80 years ago, live under it,” he said.

Verizon highlighted its view that the FCC was taking an outdated approach by handing out copies of a statement that was typed on a 1930s-era typewriter that said “it is likely that history will judge today’s actions as misguided.”

House Speaker John Boehner (R-OH) called the new net neutrality regulations “a secret plan to put the federal government in control of the Internet.” He and other Republicans criticized Wheeler for not publicly releasing the 317-page proposal before the vote.

Wheeler countered that the new rules were “no more a plan to regulate the Internet than the First Amendment is a plan to regulate free speech.”

He said he was optimistic that the plan would stand up to legal challenges even though federal judges tossed out two earlier FCC attempts to enact net neutrality rules.

The FCC said it chose to take the controversial step of reclassifying broadband providers for utility-like regulation — reversing a 2002 agency decision — because the move stood the best chance of withstanding a legal challenge to the net neutrality rules themselves.
___
Times staff writers Meg James and Yvonne Villarreal in Los Angeles contributed to this report.

Photo: ALA Washington Office via Flickr

FCC Chief Cites Wireless Industry As Precedent In Net Neutrality Proposal

By Jim Puzzanghera, Los Angeles Times (TNS)

WASHINGTON — The first Internet browser had just been launched, people were experimenting with a new form of letter-writing called email and the cellular telephone was evolving from a bulky luxury to a mass-market convenience.

The communications landscape was shifting rapidly in 1993 when Congress made a little-noticed change that classified mobile voice calling as a utility yet freed it from onerous utility regulation — part of an initiative to spur competition in the young wireless industry.

Federal Communications Commission Chairman Tom Wheeler now cites that move as a key precedent for the controversial net neutrality proposal that the agency is expected to approve Thursday.

His plan would impose federal oversight of online traffic to ensure that Internet providers don’t give preference to video and other content from some websites over others. But he promised that the FCC wouldn’t use the new authority to regulate rates or take other steps that would hinder investment in expanding fiber and wireless networks.

Instead, the FCC would use the same light-touch approach that came after the 1993 legislation and that “went hand-in-hand with massive investment” in wireless networks, said Wheeler, a Democrat who was a top industry lobbyist at the time.

“Under that, for the last 20 years, the wireless industry has been monumentally successful,” Wheeler said in a speech last month in Las Vegas.

The early history of wireless regulation offers a playbook for how the FCC could expand its oversight to broadband without disrupting the Internet economy, said supporters of tough net neutrality rules.

“We have 20 years of experience with wireless that tells us that (that type of) regulation does not prevent investment,” said Harold Feld, senior vice president at Public Knowledge, a digital rights group. “We went from having virtually no wireless coverage in this country … to something that everybody had everywhere.”

Critics of Wheeler’s plan said he’s proposing something much different than what Congress and the FCC did in 1993 — and opening the door to potentially onerous regulations.

“Wall Street analysts, economists and certainly folks in the industry … are very concerned about where this will lead,” said former FCC Commissioner Robert McDowell, a Republican and senior fellow at the Hudson Institute. “They don’t trust the FCC to stop where it says it’s going to stop.”

For two decades, however, the FCC has shown restraint.

Cellphones were gaining popularity in 1993 — subscribers had tripled to about 16 million over the previous three years — but service and offerings still were limited, and the industry was subject to a patchwork of state regulations. Congress and the Clinton administration sought to boost coverage, improve competition and spur innovation by making more wireless airwaves available and auctioning them to allow new players.

As part of a budget bill, lawmakers created the first auctions, as well as clarified regulations that covered the wireless industry, including barring state and local governments from setting rates.

And most significantly, for net neutrality supporters, Congress told the FCC to oversee mobile voice calling under the section of the telecommunications law — Title 2 — that covered conventional, highly regulated telephone companies. The new measure limited the provisions of Title 2 that applied to the wireless industry.

In 1994, the FCC exempted wireless voice calling from some of the most onerous parts of those provisions, particularly rate regulation. And the following year, the agency rejected petitions from seven states to continue regulating rates under exemptions allowed by the law.

“The rules that we adopted for wireless were new and different,” said Reed Hundt, who was FCC chairman at the time. “By saying that the government was out of the price-regulation business, we opened the door to the market innovation that you experience today.”

Cumulative investments by wireless companies in their networks and services jumped from $14 billion at the end of 1993 to $146 billion a decade later, according to data from CTIA-The Wireless Association trade group.

Growth during that period was driven primarily by voice calling. The popularity of smartphones, with demand for Internet access, sent total cumulative spending to nearly $400 billion by the end of 2013.

Wheeler’s plan would put wired and wireless broadband providers under Title 2 to give the FCC maximum authority to enforce new net neutrality rules. But just as in the mid-1990s, he said, the agency wouldn’t use most of the powers under the provision so it could avoid stunting the industry’s growth.

“We will forgo sections of Title 2 that pose a meaningful threat to network investment,” Wheeler said during a Feb. 9 speech in Boulder, Colo. “That means no rate regulation. … No tariffs or new taxes.”

But some wireless industry officials said equating regulation of wireless voice calling and mobile broadband is like comparing apples and oranges.

“That framework, while it might have worked for voice, doesn’t capture the more dynamic and multifaceted aspects of the mobile broadband marketplace,” said Scott Bergmann, CTIA’s vice president for regulatory affairs.

In addition, Wheeler plans on subjecting Internet providers to additional provisions of Title 2 that were not part of the 1993 action, he said. That could lead the FCC to take tougher steps — including regulating rates — in the future, particularly if pressured by public interest groups, he said.

The FCC faces an additional problem with wireless broadband: The 1993 law specifically exempted services other than mobile voice calling — which later included wireless Internet access — from Title 2 regulation, Bergmann said.

That distinction helped mobile broadband flourish in recent years outside of even light-touch FCC regulation, according to critics of Wheeler’s plan.

“There is no question, if you look at the investment patterns, especially since the introduction of smartphones in 2007 and thereafter, that mobile broadband investment is what is driving tremendous benefits that wireless consumers have been seeing in recent years,” said FCC member Ajit Pai, a Republican and outspoken opponent of Wheeler’s proposal.

Meredith Attwell Baker, CTIA’s president, said last month that the wireless industry “will have no choice but to look to the courts” if the FCC changes the regulatory designation for mobile broadband.

FCC officials said Wheeler, in arguing that the agency can subject mobile broadband to tougher Title 2 oversight, noted that Congress gave the FCC the authority to update regulatory definitions to reflect marketplace changes.

The wireless experience, they said, shows that an update to categorize a service as a utility does not have to lead to heavy-handed government regulation.

Photo: ALA Washington Office via Flickr

House GOP Probes White House Role In FCC’s Net-Neutrality Proposal

By Jim Puzzanghera, Los Angeles Times (TNS)

WASHINGTON — The House Republican majority’s top watchdog is launching an investigation into whether the White House improperly influenced the net-neutrality proposal released last week by the head of the Federal Communications Commission.

Rep. Jason Chaffetz (R-UT), chairman of the House Oversight and Government Reform Committee, has written to FCC Chairman Tom Wheeler asking for all documents related to communications and meetings involving White House and agency officials concerning the issue.

Last week, Wheeler proposed strict new federal oversight of online traffic to ensure Internet providers don’t give preference to video and other content from some websites over others.

Most Republicans strongly oppose the FCC’s approach, which would classify Internet service in the same way as highly regulated phone companies

Wheeler’s plan, circulated to his fellow commissioners ahead of a Feb. 26 vote, is much tougher than what he initially outlined early last year and closely follows the approach President Barack Obama publicly called for in November.

Although the president nominates the chairman and other FCC commissioners, the agency is independent and not supposed to be subject to White House control. Wheeler, a former lobbyist for the cable-TV and wireless industries who was a major fundraiser for Obama, was nominated to head the FCC in 2013.

Republicans have charged that Obama unduly influenced Wheeler’s proposal. Senate Commerce Committee Chairman John Thune (R-SD) said Wheeler “succumbed to the bully tactics of political activists and the president himself.”

Rep. Fred Upton (R-MI), chairman of the House Energy and Commerce Committee, said “the White House needs to get its hands off the FCC.” And Ajit Pai, one of two Republicans on the FCC, has called Wheeler’s proposal, “President Obama’s plan to regulate the Internet.”

Chaffetz said in a letter dated Friday that he was investigating reports indicating “views expressed by the White House potentially had an improper influence” on development of Wheeler’s proposal.

He cited a Wall Street Journal article last week that reported that two White House aides led a “secretive effort” to build support from outside groups for tough net-neutrality regulations.

The article did not indicate that the aides, Obama or other White House officials directly pressured Wheeler to take the more aggressive approach.

FCC spokeswoman Kim Hart said the agency was aware of the letter, sent Friday, and was reviewing it. The White House did not immediately respond to a request for comment Monday.

Gigi Sohn, the FCC’s special counsel for external affairs, said Friday that Wheeler’s position on net-neutrality rules had been evolving before Obama made his public comments.

“I think what the president’s statement did was, rather than force the chairman’s hand, was give him cover to do something he already was thinking about doing,” Sohn said in an appearance on C-Span’s The Communicators series.

Chaffetz asked for all documents, including calendar appointments, visitor logs and meeting minutes, related to communications between the FCC and the White House concerning net neutrality since Jan. 14, 2014, when a federal court struck down most of the agency’s rules governing online traffic.

The FCC must provide the documents no later than Feb. 20, six days before commissioners are scheduled to vote on Wheeler’s proposal, Chaffetz said.

Photo: ALA Washington Office via Flickr

FCC Chairman Proposes Tough Net Neutrality Rules Advocated By Obama

By Jim Puzzanghera, Los Angeles Times (TNS)

WASHINGTON — The head of the Federal Communications Commission said Wednesday that he is proposing tough new rules governing online traffic that would regulate Internet service like a public utility but modernize the oversight “for the 21st century.”

The proposed net neutrality rules would prohibit broadband companies from charging websites for faster delivery of their content and from blocking or slowing any legal online content or service, FCC Chairman Tom Wheeler said.

The regulations would apply to wired and wireless Internet service, he said in an opinion article on Wired’s website.

“The Internet must be fast, fair and open. That is the message I’ve heard from consumers and innovators across this nation,” Wheeler said in announcing his steps after millions of comments flooded the agency.

“That is the principle that has enabled the Internet to become an unprecedented platform for innovation and human expression,” he said. “The proposal I present to the commission will ensure the Internet remains open, now and in the future, for all Americans.”

Wheeler’s proposal must be approved by a majority of the five-member FCC, which is scheduled to vote on it Feb. 26.

“My proposal assures the rights of Internet users to go where they want, when they want, and the rights of innovators to introduce new products without asking anyone’s permission,” Wheeler said.

Wheeler is a Democrat appointed by President Barack Obama, and the FCC has a 3-2 Democratic majority. His fellow Democrats are expected to back the proposal, with the Republican commissioners opposing it.

Major Internet content companies have pushed the FCC for tough net neutrality rules. But broadband providers have threatened to sue the agency if it approves utility-like regulation, arguing it is overstepping the FCC’s authority.

After a federal court tossed out the FCC’s net neutrality rules last year, Wheeler initially proposed a lighter regulatory approach that could have allowed for some so-called paid prioritization of content.

But in November, Obama publicly called for the FCC to take a stronger approach that would classify the Internet as a regulated utility under Title 2 of the 1996 telecommunication law. Most Democrats support the tougher approach, but key congressional Republicans strongly oppose it.

Wheeler says in the Wired article that he believes the FCC has the power to reclassify Internet service as a regulated utility.

“The Congress gave the FCC broad authority to update its rules to reflect changes in technology and marketplace behavior in a way that protects consumers,” he said. “Over the years, the commission has used this authority to the public’s great benefit.”

He argues that the Internet wouldn’t have developed if the FCC had not mandated open access for network equipment in the late 1960s.

Broadband companies and Republican opponents of utility-like regulation said it was meant for railroads and phone companies, not the fast-evolving Internet.

Key congressional Republicans have proposed legislation that would prohibit broadband providers from blocking websites, slowing connection speeds and charging companies for faster delivery of their content — but without utility-like regulation.

Wheeler said Wednesday he would modernize the utility regulations so they would not squelch investment in broadband networks. For example, he said the FCC would not impose rate regulation or tariffs on Internet service.

The regulations “will be strong enough and flexible enough not only to deal with the realities of today, but also to establish ground rules for the as-yet unimagined.”

Photo: ALA Washington Office via Flickr

Economic Growth Slows Sharply In 4th Quarter To 2.6 Percent Annual Rate

By Jim Puzzanghera, Los Angeles Times (TNS)

WASHINGTON — Economic growth unexpectedly slowed sharply in the fourth quarter of last year to a modest 2.6 percent annual rate after a strong six-month stretch raised hopes the U.S. recovery finally was accelerating toward normal.

The data released Friday by the Commerce Department came in well below analyst expectations but still indicated the economy was growing at a solid pace as many nations around the world continue to struggle in the wake of the Great Recession.

“The current pace of economic growth is likely to sustain strong job growth in the coming months and further reduce the unemployment rate,” said Gad Levanon, managing director of macroeconomic and labor market research at the Conference Board.

But growth from October through December was well off the breakneck pace set from spring through fall. The U.S. economy grew at a 5 percent annual rate in the third quarter and a 4.6 percent rate in the second quarter.

The combined growth rate in those six months was the best since 2003.

Economists didn’t expect the economy to keep up that pace. But the fourth quarter’s 2.6 percent annualized growth rate of gross domestic product, the broadest measure of economic activity, came in well below the 3.2 percent consensus forecast.

Friday’s data were the government’s first estimate for the quarter and the figure could be revised upward in the coming weeks.

The fourth-quarter slowdown meant the economy expanded at a 2.4 percent rate last year, a slight improvement over 2013’s 2.2 percent rate and the best performance since 2010. Growth last year was dragged down by a 2.1 percent contraction in the first quarter caused by severe weather in much of the country.

Plunging oil prices boosted consumer spending in the fourth quarter to its highest level since 2006. Consumer spending increased at a 4.3 percent annual rate, up from a strong 3.2 percent in the third quarter.

But the rising value of the dollar compared to other currencies caused export growth to fall for the second straight quarter.

The pace of growth of business investment also slowed, to 1.9 percent. And government spending declined at an annualized rate of 2.2 percent, led by a steep decline in federal defense outlays.
Federal Reserve policymakers are watching the economic data as they try to decide when to start raising the central bank’s rock-bottom short-term interest rate. After a policy meeting this week, the Fed upgraded its assessment of the economy and signaled it could start raising rates as early as June.

Photo: Sebastian Alvarez via Flickr

Republicans In Congress Begin New Effort To Water Down Dodd-Frank Law

By Jim Puzzanghera, Los Angeles Times (TNS)

WASHINGTON — Boosted by their November election gains, congressional Republicans have launched a new effort to weaken, bit by bit, a law that dramatically expanded federal oversight of the financial system after the Great Recession.

On Wednesday, the Republican-controlled House is expected to pass a package of bills making changes to the 2010 law, known as Dodd-Frank, which also created a powerful new agency to protect consumers.

The law was enacted over nearly unanimous opposition from Republican lawmakers. Many despise Dodd-Frank almost as much as they do Obamacare because they believe it’s an overreaction to the 2008 financial crisis and an unnecessary burden on business.

Now with a Senate majority too, Republicans no longer have to worry about Democrats stopping attempts to chip away at the law’s hundreds of regulations, though President Barack Obama’s veto pen looms in the White House.

“The truth is Dodd-Frank was not chiseled in stone. Nobody brought it down to us from Mount Sinai,” said House Financial Services Committee Chairman Jeb Hensarling (R-TX), who is leading the effort to change the law. “Congress would be negligent in its duties if we did not continually monitor and fix Dodd-Frank’s unintended consequences.”

In the last few weeks, Republicans watered down key parts of Dodd-Frank by attaching provisions to so-called must-pass bills — one funding most of the federal government and another reauthorizing an important terrorism risk insurance program that had expired. Obama signed the bills despite his opposition to their changes in Dodd-Frank.

The maneuver provided an early road map to how the new Republican-controlled Congress might try to make long-sought changes to financial regulations over Obama’s objections.

Liberal Democrats, led by Sen. Elizabeth Warren (D-MA) and Rep. Maxine Waters (D-CA), are rallying to stop the effort.

They nearly derailed the government funding bill last month because it contained a provision that eased Dodd-Frank restrictions on bank trading of financial derivatives — the type of complex investments that helped trigger the financial crisis.

Liberals’ anti-Wall Street fervor was highlighted this week when investment banker Antonio Weiss withdrew his nomination to a senior Treasury Department position because of opposition from Warren and others who objected to his Wall Street background.

“We’ve already seen that the new Republican Congress is going to aggressively attack the Dodd-Frank act,” said Warren, who was an outspoken advocate for the legislation. She launched the law’s Consumer Financial Protection Bureau before winning a Senate seat in 2012.

“The risk of another financial crisis remains too high, and we should be strengthening financial reforms, not rolling them back to benefit Wall Street,” she said.

The proposed changes before the House now include a controversial two-year delay in implementing part of the so-called Volcker Rule, which bars banks from making risky investments. The changes are necessary, supporters say, to avoid saddling businesses with heavy-handed regulations.

The White House said Obama would veto the bill because “the administration has strong concerns with any provisions that would weaken key consumer and investor protections and elements of financial oversight.”

Most Democrats have vowed to keep the law intact.

“We have seen this movie before,” said Sen. Sherrod Brown (D-OH). “We will keep seeing it over and over again.”

But some changes are needed, said Francis Creighton, executive vice president of government affairs at the Financial Services Roundtable, an industry trade group. He argued that Democrats are overreacting to sensible and relatively small-scale fixes.

“Sometimes we’re trying to do things that will actually make the system work better,” he said. “We’re not always twisting our mustache, doing this villainously.”

The delay in the Volcker Rule, for instance, is necessary to avoid pushing banks into getting rid of some assets in a “fire sale” fashion, Creighton said. The legislation in the House would extend an existing delay in implementing the rule to 2019 from 2017.

Republicans note some of the Dodd-Frank changes have bipartisan support.

The legislation that includes the Volcker Rule delay, called the Promoting Job Growth and Reducing Small Business Burdens Act, garnered 35 Democratic votes last week when Republicans unsuccessfully tried to pass it in an expedited procedure that required a two-thirds vote.

The focus liberals have put on changes to Dodd-Frank in recent weeks has made it tougher for Democrats to support the Republicans, said former Rep. Barney Frank (D-MA).

“I’ve talked more about the bill in the last couple of months than in years, and that’s a good thing,” said Frank, who led the effort to pass it in the House in 2010. “It’s now become a national issue again and I’m very confident the public will become very angry” if Republicans continue to attack it.

The biggest mistake Republicans could make would be to try to weaken the Consumer Financial Protection Bureau, which is popular with the public, Frank said.

The bureau has a director, who is appointed by the president to a five-year term, and is funded directly by the Federal Reserve, which means Congress can’t cut its budget.

Republicans complain the agency is too powerful and want to replace the director with a five-member commission and subject its funding to the congressional appropriations process. The House has approved legislation in the past to make those changes, but the bills have died in the Senate.

It’s unclear whether Senate Republicans now will be able to pass Dodd-Frank changes. If they do, Obama will veto them, said Treasury Secretary Jacob J. Lew.

Republicans could then try to force Obama’s hand by including the changes in must-pass bills. Last week, for instance, they added to the terrorism risk insurance bill a provision to exempt agricultural and energy companies from requirements to post collateral when trading derivatives.

Warren and other supporters of Dodd-Frank have called such maneuvers legislative hostage-taking.

“If we fail to challenge this cynical strategy now, it will only encourage Republicans to pull our financial regulations apart piece by piece,” Warren told her colleagues last week. But an attempt to remove the provision from the bill was defeated 66-31.

Photo: House GOP via Flickr

House Approves Volcker Rule Delay Despite Obama Veto Threat

By Jim Puzzanghera, Los Angeles Times (TNS)

WASHINGTON — The House defied a veto threat by President Barack Obama and voted Wednesday to approve a two-year delay in implementing part of the so-called Volcker Rule, a key banking regulation enacted in the wake of the 2008 financial crisis.

The delay was the most controversial of numerous changes in the 2010 Dodd-Frank financial regulatory overhaul that the House approved by a 271-154 vote in the latest Republican effort to weaken a law that nearly all of them opposed.

Republicans described the changes as minor fixes to a complicated law that were needed to avoid overburdening businesses. There were 29 Democrats who joined with all but one Republican, Walter Jones of North Carolina, in approving the bill Wednesday.

“These are smart, technical reforms to an overly burdensome law, Dodd-Frank, that are bipartisan,” said Rep. Michael Fitzpatrick (R-PA), who sponsored the package of changes.

“These regulations may have been targeting Wall Street, but their burden falls heavily on Main Street,” he said.

Most of the changes have enjoyed broad bipartisan support in previous House votes.

But Obama and most Democrats opposed the new bill largely because of the revisions to the Volcker Rule, a centerpiece of Dodd-Frank that prohibits banks from trading for their own profit and limits their ownership of risky investments.

Part of the rule requires banks to divest their holdings of collateralized loan obligations, types of financial securities primarily backed by commercial loans. The Federal Reserve already delayed that requirement to 2017.

The House bill would delay it until 2019. The move has been strongly pushed by financial industry lobbyists, who said it would prevent banks from having to sell their investments in a fire-sale fashion.

Rep. Maxine Waters (D-CA), one of the chief defenders of the Dodd-Frank law, said that the delay wasn’t needed.

“Somehow, Wall Street bankers, the supposedly smartest people in the room, can’t seem to comply with a law passed in 2010 by … 2017,” she said. “Seven long years isn’t enough. The Republicans and the banks want nearly a decade.”

In its veto threat, the White House said the Obama administration “has significant concerns with provisions that would undermine the Volcker Rule.”

But supporters of the bill said Democrats were overreacting.

“For some members of the Democrat Party, apparently Dodd-Frank has been elevated beyond ideology to religion and there can be no changes in a 2,000-page bill that we know to be fraught with unintended consequences,” said House Financial Services Committee Chairman Jeb Hensarling (R-TX), a leading opponent of the law.

Rep. Andy Barr (R-KY) noted the House bill “doesn’t do away with the Volcker Rule” but simply makes some changes needed to help banks and make sure credit remains available for businesses.

It’s unclear if the new Republican majority in the Senate will take up the bill and if opponents, led by Sen. Elizabeth Warren (D-MA), have enough votes to filibuster it.

But Republican leaders could try to attach the legislation to a government funding bill or other so-called must-pass measures that would be difficult for Obama to veto.

That’s the strategy they’ve used in recent weeks to make some other important changes to Dodd-Frank, including easing restrictions on bank trading of financial derivatives.

Photo: Mathew Knott via Flickr

Fewest Job Cuts Announced Last Year Since 1997, Challenger Says

By Jim Puzzanghera, Los Angeles Times (TNS)

WASHINGTON — Planned job cuts by U.S. businesses declined in December for the second-straight month, helping 2014 post the fewest announced layoffs in 17 years, career counseling firm Challenger Gray and Christmas said Thursday.

“Layoffs aren’t simply at pre-recession levels, they are at pre-2001-recession levels,” said John A. Challenger, the firm’s chief executive.

“This bodes well for job seekers, who will not only find more employment opportunities in 2015, but will enjoy increased job security once they are in those new positions,” he said.

U.S. firms announced 32,640 layoffs in December, down 9.2 percent from the previous month, Challenger said.

For the year, there were 483,171 planned job cuts, down 5 percent from last year. That was the fewest since 1997, according to Challenger.

The figures are consistent with accelerating job growth.

The U.S. economy added more than 200,000 net new jobs for ten straight months beginning in February, including a robust 321,000 in November.

Economists forecast the December figure, to be released Friday by the Labor Department, will be 245,000.

Initial jobless claim figures Thursday also were in line with a strong labor market.

About 294,000 people filed for first-time unemployment benefits last week, down 4,000 from the previous week, the Labor Department said.

The less-volatile four-week average fell slightly to 290,500, a level consistent with a healthy labor market.

California, the nation’s most populous state, had the most announced job cuts last year with 83,433, Challenger said. That was more than double the amount for New York, which was second.

The large number of layoffs in California was partly due to a surge in job cuts by computer companies.

The industry announced 59,528 layoffs last year, a 69 percent increase from the previous year. Many of those layoffs came from Palo Alto-based Hewlett-Packard Co., as well as Microsoft Corp., Challenger said.

The entertainment industry, which also has a strong California presence, also saw a major increase in planned layoffs last year. The figure more than doubled to 32,235.

The sector ranked fourth nationally. Overall, planned layoffs were down in 16 of 28 industries tracked by Challenger.

Retail companies had the second-most planned layoffs last year at 43,783, but that was down 11 percent from the previous year.

The healthcare industry was third with 38,359, which was a decrease from 52,637 in 2013, Challenger said.

AFP Photo/Scott Olson