Russian Trade Limits, Oil Import Bans, and Clean Energy
Tax Policy:
April 11: IRS catching up on backlog of unprocessed returns
IRS Commissioner Chuck Rettig testified last week during a Senate Finance Committee hearing about the IRS’s plans to get caught up by the end of the year. “With respect to our current 2022 filing season, we are off to a healthy start in terms of tax processing and the operation of our IT systems,” he said. "We need to crush our paper inventories. We need to crush our return backlog because the folks who answer the phones also process paper. When we can get through the paper, we can get all those folks full-time back onto the phones and handle that. We're committed to getting into that position by the end of the calendar year 2022." The IRS has set up "Surge teams" where it has moved employees from other functions to help with processing tax returns.
"IRS began the filing season with a backlog of 8 million individual and business returns from the prior year that it processed alongside incoming returns," said the report.
"IRS reduced the backlog of prior year returns, but as of late December 2021, had about 10.5 million returns to process from 2021. Further, IRS suspended and reviewed 35 million returns with errors primarily due to new or modified tax credits. As a result, millions of taxpayers experienced long delays in receiving refunds. GAO found that some categories of errors occur each year; however, IRS does not assess the underlying causes of taxpayer errors on returns. Doing so could help reduce future errors, refund delays, and strains on IRS resources." Last year, the IRS answered more phone calls than in previous years, but taxpayers still had a hard time reaching someone at the IRS due to the high call volumes.
The IRS doesn't have plans to modernize "Where's My Refund," though the GAO noted that that could help the IRS better serve taxpayers, lower call volume, and reduce costs. The agency doesn't have a plan or estimates for reducing this backlog, according to the GAO, although doing so could help reduce the demands on the IRS. The report also noted that in-person service has significantly declined since 2015 and that the IRS hasn't fully considered alternatives for its current in-person service model. The agency's plans to improve the taxpayer experience, for example by expanding virtual services, could further contribute to a decrease in in-person visits with the IRS. The GAO made six recommendations in its report, suggesting the IRS should assess the reasons for tax return errors and refund interest payments and take action to reduce them.
Economic News/Policy:
April 12: Biden to announce plan to ease gas prices as inflationary pressures persist
The White House plans to roll out new policies Tuesday aimed at curbing gas prices as it responds to a crushing new report showing that inflationary pressures on millions of Americans have intensified this year. The flurry of activity around gas prices will come just hours after this morning's release of an inflation report that showed prices rising by 8.5 percent relative to last year, despite the Biden administration's months-long efforts to bring inflation down. Some experts panned the latest White House move as unlikely to lower consumer prices.
White House press secretary Jen Psaki on Monday attempted to preempt criticism over the new inflation report by blaming "Putin's price hike." Russia's invasion of Ukraine ordered by President Vladimir Putin came at a time when many economists were optimistic that prices would begin to moderate, but energy and food prices have moved higher since the February invasion, given Russia's centrality in providing those global commodities.
The White House has tried for weeks to blame the surging gas prices on Russia while also seeking to advance policies that Biden and his advisers have said could offer some temporary relief. Last month, Biden announced the White House would release 1 million barrels of oil each day from the Strategic Petroleum Reserve in order to try to push prices down over the next several months. Inflation appears to have sunk Democrats' poll numbers, damaged the administration's boasts over the economic recovery, and even hurt Biden's legacy by creating new roadblocks to his domestic policy agenda in Congress.
April 12: Consumer prices spike in March as Russia-Ukraine war fueled inflation
Consumer prices rose 1.2 percent in March and 8.5 percent over the past 12 months as the war in Ukraine drove inflation even higher, according to data released Tuesday by the Labor Department. The Labor Department's consumer price index, which tracks inflation, spiked in March as Russia's invasion of Ukraine triggered sharp price increases across the global economy.
Inflation had already been rising before the war in Ukraine, pushing up prices for food, gasoline, shelter, automobiles, and a wide range of basic consumer goods. Food prices rose 8.8 percent over the past 12 months and 1 percent in March alone, with prices for groceries rising 1.5 percent and prices for restaurant and pre-prepared food up just 0.3 percent.
The White House and Democrats have been eager to blame inflation on the impact of the war-a dynamic they call "Putin's price hike." After months of steadily rising prices, Democrats are eager to pin the recent spike on the Russian war amid voter concern with President Biden's handling of the economy.
"We expect March CPI headline inflation to be extraordinarily elevated, due to Putin's price hike," White House press secretary Jen Psaki told reporters Monday, saying the impact of energy prices will largely be to blame and that the fault lies in part with Putin's invasion. The March inflation report showed prices rising broadly through the economy and in areas relatively insulated from the war.
April 12: U.S. Inflation Accelerated to 8.5% in March, Hitting Four-Decade High
Prices for groceries accelerated in March, rising 1.5% from a month earlier, while the cost increases for dining out moderated. The so-called core price index, which excludes the often-volatile categories of food and energy, increased 6.5% in March from a year earlier-up from February's 6.4% rise, and the sharpest 12-month rise since August 1982.
High inflation is the downside of booming growth as the economy bounces back from the Covid-19 pandemic, creating a tough balancing act for the Fed as it tightens monetary policy to douse price gains without damping growth.
"We're seeing strong inflation momentum across the board, both for goods and services," said Blerina Uruci, U.S. economist at T. Rowe Price Group Inc. Ms. Uruci said supply-chain constraints continue to push prices up, except for an easing of the costs for used cars.
New vehicle prices decelerated on a one-month basis, rising 0.2% in March from the prior month. High and rising inflation readings have cranked up pressure on the Fed to keep lifting interest rates this year to lower price pressures. With job growth strong and inflation well above the Fed's target, many Fed officials have indicated they could support raising rates by a half percentage point-instead of the traditional quarter point-at their next meeting in early May. Energy prices soared in early March as Russia's invasion of Ukraine pushed up crude-oil prices.
April 12: Biden will allow summertime sales of higher-ethanol gas as prices remain elevated
President Biden will announce on Tuesday a suspension of a summertime ban on sales of higher-ethanol gasoline blends, a move that White House officials said was aimed at lowering gas prices but that energy experts predicted would have only a marginal impact at the pump. On Tuesday, the Environmental Protection Agency will issue a waiver that will allow the blend known as E15 - which is made of 15 percent ethanol - to be used between June 1 and Sept. 15.
The White House estimated that allowing the ethanol blend to be sold in the summer would shave 10 cents off every gallon of gasoline purchased at the approximately 2,300 stations in the country that offer it, and cast the decision as a move toward "Energy independence." A gallon of gas was averaging $4.10 on Tuesday, according to AAA. Mr. Biden is expected to make the announcement about E15 on Tuesday when he visits an ethanol plant in Menlo, Iowa.
Ethanol is made from corn and other crops and has been mixed into some types of gasoline for years as a way to reduce reliance on oil. How much the presence of ethanol holds down fuel prices has been a subject of debate among economists. Oil refiners are required to blend some ethanol into gasoline under a pair of laws, passed in 2005 and 2007, intended to lower the use of oil and the creation of greenhouse gases by mandating increased levels of ethanol in the nation's fuel mix every year.
April 10: Recession Risk Is Rising, Economists Say
Economists see a growing risk of recession as the relentlessly strong U.S. economy whips up inflation, likely bringing a heavy-handed response from the Federal Reserve.
"Risk of a recession is rising due to the series of supply shocks cascading throughout the economy as the Fed lifts rates to address inflation," said Joe Brusuelas, chief economist at RSM US LLP. Economists slashed their forecast for growth this year.
The looming risk of a downturn alongside alarmingly high inflation, which hit 7.9% in February, captures the Fed's balancing act: It is attempting to cool the economy enough to bring down inflation, but not so much that it spurs a pullback in spending and rising unemployment. Economists' recession probability reached the same level in August 2007, after which a recession did follow.
"To be seen not fighting it is politically unwinnable. But the only policy response the Fed has is to tighten," said Ms. Cutts, who puts the chance of a recession in the next 12 months at 70%. "Fed actions to curb inflation will lead to a recession sooner rather than later."
Mr. Marey said that because that process is already under way, the Fed will have to raise rates enough to induce a recession to break the inflation dynamic. While recognizing the rising risk of a downturn, a majority of economists-63%-still think the Fed will be able to rein in inflation without triggering a recession-what economists call a "Soft landing." Many said the economy is well positioned to withstand tightening given unemployment near record lows, steadily rising incomes and relatively subdued levels of consumer debt.
April 10: Economy Week Ahead: Inflation, Retail Sales, Consumer Sentiment
Tuesday: U.S. Inflation has risen at the fastest pace in about 40 years. Economists expect the consumer-price index for March accelerated further to 8.4% on the year.
Wednesday: The producer-price index, which measures what suppliers are charging businesses, can anticipate inflation trends. Economists forecast it accelerated 1.1% in March from the previous month, up from 0.8% in February.
Thursday: Retail sales have been strong for the past few months, despite the rise in consumer prices. Economists see sales growing another 0.5% in March from the previous month. U.S. consumer sentiment is at its lowest point since August 2011, on fears of accelerating inflation. Economists expect the University of Michigan’s sentiment gauge will fall further in an April preliminary reading to 59.
Friday: U.S. industrial production in February recorded its highest level since December 2018. Economists anticipate it rose again in March by 0.4%.
April 7: Jobless claims fall to 166K, lowest level since 1968
New weekly claims for unemployment insurance fell to the lowest level since 1968 at the end of March, according to data released Thursday by the Labor Department. In the week ending April 2, the seasonally adjusted total of new claims for jobless benefits fell to 166,000, a decline of 5,000 from the previous week. Seasonally adjusted weekly jobless claims have fallen to the lowest level since the week ending Nov. 30, 1968, when 162,000 Americans filed to start a new cycle of unemployment insurance.
The Labor Department also revised the previous week's seasonally adjusted total of jobless claims down by 31,000 to 171,000 from an initially reported level of 202,000. The size of the revision may be due in part to new seasonal adjustments used by the Labor Department this week to better account for the effects of the pandemic.
Without seasonal adjustments, weekly jobless claims fell by 3,674 to a total of 193,137, a decline of 1.9 percent from the previous week. After briefly rising in mid-January during the peak of the omicron wave, jobless claims have fallen steadily through 2022 as businesses seek to hire and retain as many workers as possible amid historic demand for labor.
Ukraine Crisis/Russia’s Economic Impact:
April 7: Senate votes 100-0 to limit trade with Russia, ban oil imports
The Senate on Thursday unanimously passed a package to end normal trade relations with Russia and Belarus and codify the administration's ban on Russian oil imports, capping off weeks of negotiations that had stalled the legislation. The second bill, which also passed 100-0, codifies the Biden administration's ban on Russian oil imports.
Because the Senate made changes to both bills, they need to be passed by the House before they go to President Biden's desk. The House is expected to pass the bills on Thursday, a day after the Senate announced on Wednesday night that it has reached a deal.
"No nation whose military is committing war crimes deserves free-trade status with the United States. No vile thug like Putin deserves to stand as an equal with the leaders of the free world," Senate Majority Leader Charles Schumer said ahead of the votes.
The trade bill passed the House on March 17, while the bill to codify the Biden administration's oil ban passed on March 9. As part of a deal to get votes on the Russia package today, the Senate also passed bipartisan legislation on Wednesday night to establish a lend-lease program for Ukraine, making it easier to send military aid to the country.
April 6: Yellen says the aim is ‘maximum pain’ for Russia without hurting the U.S. economy
Treasury Secretary Janet L. Yellen said on Wednesday that the United States would continue taking steps to cut Russia off from the global financial system in response to its invasion of Ukraine and argued that the sanctions already imposed had taken a severe toll on the Russian economy.
"Our goal from the outset has been to impose maximum pain on Russia, while to the best of our ability shielding the United States and our partners from undue economic harm," Ms. Yellen told lawmakers.
The measures introduced on Wednesday included "Full blocking" sanctions against Sberbank, the largest financial institution in Russia, and Alfa Bank, one of the country's largest privately owned banks.
Others connected to Russian officials with close ties to Mr. Putin will also face sanctions, including the wife and daughter of Russia's foreign minister, Sergey Lavrov, and members of Russia's security council, including former Prime Minister Dmitri Medvedev.
Global banks are bracing for the effects of sanctions intended to restrict Russia's access to foreign capital and limit its ability to process payments in dollars, euros and other currencies crucial for trade.
The Treasury secretary downplayed the rebound of Russia's currency, the ruble, which cratered after the sanctions were imposed in February but has since regained its value.
Ms. Yellen argued that Russia's invasion of Ukraine underscored the need for the United States and other countries to invest in becoming energy independent so that "Dictators" did not control the price and availability of global energy supplies.
Environmental Policy:
April 9: Push against Russian fuel could accelerate clean energy transition
Efforts to cut off Russian fuels after the country's invasion of Ukraine have the potential to speed up the global clean energy transition. While in the short-term nations have been trying to figure out where to buy oil and natural gas from suppliers other than Russia, in the long term it could lead nations in Europe, in particular, to move towards other sources of energy entirely.
The plan for reducing reliance on Russian natural gas included a range of policies to promote clean energy rather than climate-warming fossil fuels, though the plan also calls for finding alternate sources of natural gas. Specifically, it said it would push more rooftop solar panels and energy-efficient heat pumps, speed up permitting for renewable energy projects and promote the import and domestic production of renewable hydrogen energy.
Victor said there is a potential for new energies spurred by the Russian invasion to be jump-started, much as solar energy sprang up globally after investments in the United States. The United Kingdom, which is no longer a part of the E.U., this week put forward an "Energy security strategy" that aims to bolster energy efficiency, renewables, nuclear and other technologies, but also expand offshore drilling.
"The U.S. could be doing a lot more to be responding to the moment," said Majkut, arguing that the country should help Europe increase its energy security, including by supplying more oil and gas.
For Fun:
April 7: Scientists Have Spotted the Most Distant Galaxy Ever
An international team of astronomers, including researchers at the Center for Astrophysics | Harvard & Smithsonian, has spotted the most distant astronomical object ever: a galaxy. Named HD1, the galaxy candidate is some 13.5 billion light-years away and is described today in the Astrophysical Journal.
The team proposes two ideas: HD1 may be forming stars at an astounding rate and is possibly even home to Population III stars, the universe's very first stars, which, until now, have never been observed. At first, the researchers assumed HD1 was a standard starburst galaxy, a galaxy that is creating stars at a high rate.
"If we assume the stars produced in HD1 are these first, or Population III, stars, then its properties could be explained more easily. In fact, Population III stars are capable of producing more UV light than normal stars, which could clarify the extreme ultraviolet luminosity of HD1.".
A supermassive black hole could also explain the extreme luminosity of HD1. As it gobbles down enormous amounts of gas, high-energy photons may be emitted by the region around the black hole.
"HD1's red color matched the expected characteristics of a galaxy 13.5 billion light-years away surprisingly well, giving me a little bit of goosebumps when I found it." If current calculations prove correct, HD1 will be the most distant and oldest galaxy ever recorded.