GDP Rose 2.4% in Second Quarter
On Friday, the Commerce Department reported that U.S. gross domestic product rose at an annualized seasonally adjusted rate of 2.4% for the second quarter, indicating that the recovery has been weaker than previously expected. However, the report also indicated that business spending increased by 21.9% in the second quarter, compared with a 20.4% rise in the first three months. The figures highlight the contrast in the economy between company profits and the slower jobs market. The underlying inflation rate increased by 1.1% in the April-to-June period over the previous quarter. The consumer price index rose by only 0.1% in the second quarter, slowing sharply from a 2.1% gain in the first quarter. Gross domestic purchase prices rose 0.1%, after a 2.1% increase in the first quarter. The chain-weighted GDP price index increased by 1.8%, compared to 1.0% in the first three months. In a revised assessment of 2009, the Commerce Department’s report indicated the U.S. economy contracted by 2.6%, compared to the previously estimated 2.4% decline.
New York Attorney General Announces Probe of Insurers
On Thursday, New York Attorney General Andrew Cuomo announced that he had opened a fraud investigation into how life insurers pay out benefits after policyholders die. Cuomo said his office served subpoenas on Prudential Financial, Inc. and MetLife, Inc. as part of the probe, seeking information on the companies’ life insurance policies.
Bullard Warns of Deflation
On Thursday, James Bullard, president of the Federal Reserve Bank of St. Louis, warned that the Fed’s policies were putting the economy at risk of becoming “enmeshed in a Japanese-style deflationary outcome within the next several years.” Bullard went on to say that the best way for the Fed to avoid falling into a deflationary trap is to shift away from insisting that interest rates remain low, and instead focusing on “quantitative easing” measures by buying Treasuries, funneling money into the economy and boosting inflation expectations. On Friday he reiterated those remarks, but noted that while deflation is a risk, it is not the most likely economic scenario. Bullard has voiced worries about the “extended-period” language since early March, but he has not voted against policy action. He said Thursday his comments were intended to spark debate.
Issa Introduces Bill to Repeal FOIA Exemption for SEC
On Tuesday, Rep. Darrell Issa (R-CA), ranking member of the Oversight and Government Reform Committee, introduced legislation entitled “The SEC Freedom of Information Restoration Act” to repeal section 9291 of the Dodd-Frank Wall Street Reform Act. Section 9291 allows the SEC to refuse to disclose records or other information in response to certain Freedom of Information Act (FOIA) requests.
House Committee Passes Online Gambling Bill
On Thursday, the House Financial Services Committee passed a bill that would legalize online poker and other non-sports betting in the United States, thus overturning a 2006 federal law that prohibits such transactions domestically. However, with Congress set to recess for August and only returning for a limited September schedule before the November elections, the prospects for the bill’s passage are slim.
Preliminary Agreement on new BASEL Standards
On Monday, the Basel Committee on Banking Supervision reached a preliminary agreement on new capital standards for global financial institutions. The standards are less onerous than earlier proposals, and give banks more leeway to define what counts as Tier 1 capital. The next step will be for regulators to conduct an analysis of how the standards would affect the biggest banks in Europe, Asia, and the United States. The committee is expected to reconvene in November to complete the new rules, which will begin to take effect in the United States next year. Under the plan, banks will have until as early as 2018 to comply with a requirement that they hold at least $3 in capital for every $100 they lend — a leverage ratio of 3 percent.
Geithner Indicates Possible Support Warren
While President Barack Obama has yet to announce his pick to head the new consumer financial protection agency, Treasury Secretary Timothy Geithner made positive comments this week about the possible nomination of Elizabeth Warren to be the new director. Speaking to Jake Tapper on ABC’s This Week, Geithner said: “[s]he’s probably the most effective advocate for reform for consumers for consumer protection in the country. She has huge credibility, and she played a decisive role in helping make the public case for reform.” He further noted, “[s]he has enormous credibility, and she’d be an excellent leader of that institution. But that’s a decision the president’s going to make.” President Obama is expected to announce his selection in the coming weeks, but such positive comments by Geithner are considered a strong indication of Warren’s possible nomination.
If you have any questions regarding any of these issues, please contact:
Matt Jessee, Policy Advisor
Kip Wainscott, Associate Attorney