Sen. Reid Orders Attendance For Shutdown Speech

While President Barack Obama held court with the press on the budget impasse, Senate Majority Leader Harry Reid (D., Nev.) ordered his colleagues to the Senate floor where he made a dramatic plea for ending the government shutdown.

The unusual maneuver – Mr. Reid, in a sort of attendance check, instructed the Sergeant at Arms to require senators come to the Senate chamber – caused his colleagues to miss out on part of Mr. Obama’s hour-long press conference but gave the Senate Democratic leader a captive audience.

“This government shutdown is an embarrassment to our nation,” Mr. Reid told about more than 80 senators gathered at their chamber desks in a rare moment where the Senate is full for a speech. A few of the senators left the chamber after casting a vote on Mr. Reid’s attendance request, which passed 84-14.

Mixing frustration and anger, Mr. Reid appealed to his colleagues’ stature as U.S. senators, saying that “it’s time for us, members of this august body, to stand before the American people and publicly discuss the path forward.” It was a theatrical gesture designed to match the moment: a crisis in governance that some lawmakers fear could turn into a crisis in the economy.

A partial U.S. government shutdown entered a second week Tuesday and about 450,000 federal workers are furloughed. The nation is also hovering near the limit of its $16.7 trillion borrowing capacity – a subject that has divided Congress and splintered Republicans, some who think the country should slash services instead of borrowing more.

Mr. Reid said that Democrats had already negotiated with Republicans over spending levels and said Congress is obligated to raise the borrowing limit. He offered again, as he has for days, to negotiate with Republicans in wide-ranging talks once the government is reopened and the debt ceiling is raised.

On the debt ceiling, Mr. Reid talked about Democratic legislation to raise the borrowing limit for a year. He warned that without Republican cooperation, “the process will take us right up to the debt limit – one day before.” Treasury Secretary Jacob Lew has said that by about Oct. 17, the country will have only $30 billion on hand, not enough to pay all the bills about to come due.

“Great nations have to meet expectations,” Mr. Reid said.

“I am optimistic – even though that’s against my nature — that Republicans are not going to hold the full faith and credit of the United States hostage,” Mr. Reid said. “I hope I’m right.”

Mr. Reid went off script only once, to address reports that the families of dead U.S. soldiers had been denied airfare to come meet the bodies because of the government shutdown.

Mr. Reid said that was “shameful and embarrassing.”

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Unlike Dad, Rand Paul Gets to Weigh In on Fed Pick

WASHINGTON–Foes of the Federal Reserve were thrilled to watch former Rep. Ron Paul of Texas wage war on the central bank in the House and on the GOP presidential campaign trail, but lamented that he could never object where it counts most: the Senate.

Now, his son, Sen. Rand Paul (R., Ky.) has an invitation to the months-long drama that starts formally unfolding later Wednesday when President Barack Obama will announce he is nominating the current Fed vice chairwoman, Janet Yellen, to lead the central bank.

The younger Mr. Paul hasn’t said yet whether he’ll support Ms. Yellen — or what he’ll do to delay her confirmation — but he isn’t likely to let the moment pass without weighing in.

“Senator Paul looks forward to an in-depth discussion about the role and actions of the Federal Reserve while debating this nomination,” a spokeswoman said Wednesday. The first-term senator has already pushed to submit the central bank to further scrutiny, including allowing the government to review its policy deliberations.

Before Ms. Yellen contends with the opinions of Mr. Paul and other GOP senators who have deployed the Senate’s procedural delaying tactics this year, she is sure to face a barrage of questions from Republicans on the Senate Banking Committee. That panel must approve her nomination for it to advance to the Senate floor for a confirmation vote by the full chamber.

Sen. Mike Crapo of Idaho, the top Republican on the committee, indicated in a statement Wednesday morning that Ms. Yellen will face tough questions over the Fed’s aggressive bond-buying programs, often called quantitative easing, and the slew of new banking regulations being crafted as part of the Dodd-Frank financial overhaul.

“I continue to strongly disagree with the Fed’s use of quantitative easing, and am eager to learn Ms. Yellen’s vision for the direction of the Federal Reserve as we go through the nomination process,” Mr. Crapo said in the statement. “Ms. Yellen’s nomination to serve as the next chairman of the Federal Reserve Board will be carefully reviewed and considered by the Banking Committee.”

Sen. David Vitter (R., La.), also on the banking panel, plans to press Ms. Yellen on how she plans to prevent banks from growing so large and interconnected that the failure of one could imperil the financial system.

“My biggest question to Ms. Yellen will be: Will she actively push for higher capital requirements for mega-banks than regulators have announced?” Mr. Vitter said in a statement. “My biggest concerns are that she won’t, continuing to support ‘too big to fail’ and bailouts as needed, and that she’ll continue the Fed’s excessive printing of money.”

But Ms. Yellen’s nomination arrives in the Senate with plenty of cheerleaders, both on Capitol Hill and among other key allies.

The Fed vice chairwoman is “eminently qualified for the position and has the support of a wide range of economists and financial experts,” Sen. Carl Levin (D., Mich.) said in a statement Wednesday, praising her attention on the Fed’s role in bringing down unemployment. “Most importantly, she recognizes the need both for monetary policy that supports economic growth and job creation and for financial regulation that prevents a repeat of the financial crisis from which we are still recovering,” Mr. Levin said.

The Fed has a dual responsibility to keep prices stable and employment at its maximum sustainable level.

Women’s and labor groups lauded Mr. Obama for his selection of the first female chairwoman of the central bank.

“We commend President Obama for breaking the glass ceiling at this critical public institution,” Richard Trumka, president of the AFL-CIO labor group said Wednesday.

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Vital Signs: Mortgage Activity Falls but Not to Cellar

The urge to buy a home has softened now that mortgage rates have increased from the generational lows seen in May. But home demand hasn’t tumbled into the basement.

The Mortgage Bankers Association reported Wednesday that applications to purchase a home slipped slightly in the week ended October 4, but the smoothed four-week moving average edged higher. Applications are not as strong as back in the spring, but they haven’t collapsed either.

One reason is that mortgage rates are falling again. Market expectations that the Federal Reserve would slow its bond-buying program in September had pushed bond yields higher. When the Fed did not taper, rates fell back.

The 30-year fixed mortgage rate is back below 4.5%.

What remains to be seen is how the government shutdown slows the mortgage approval process in coming weeks. Delays could weaken home sales in the fourth quarter.

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GOP Seizes on ‘We Are Winning’ Quote

Both sides in the government shutdown fight are looking for any advantage they can get in swaying public opinion. Republicans and Democrats alike are mining the newspapers and cable news shows for the stray quote that paints the other side in an unflattering light — and finding some success.

On Friday, House Republicans seized on a quote in the Wall Street Journal from a senior Obama administration official assessing the political stakes.

“We are winning …” the official said. “It doesn’t really matter to us” how long the shutdown lasts “because what matters is the end result.”

House Speaker John Boehner (R., Ohio) waved a copy of the newspaper at a morning press event, read the quote aloud and said: “This isn’t some damn game! The American people don’t want their government shut down and neither do I.”

Republican National Committee chairman Reince Priebus also weighed in, tweeting: “WH: ‘We are winning … It doesn’t really matter to us” how long the shutdown lasts. Tell that to the millions affected by shutdown & #trainwreck.”

Republicans showcased the quote in a series of tweets that aimed to depict the White House as focused on the political back-and-forth while ignoring hardships borne by real families.

Brendan Buck, a spokesman for Mr. Boehner, put out several tweets that it “doesn’t matter” to the White House that the shutdown has eroded embassy security or impeded the housing market recovery.

The White House staff, its ranks thinned by the shutdown, fought back with tweets insisting the president indeed wants the shutdown to end as quickly as possible.

Press Secretary Jay Carney got into a Twitter argument with Politico reporter Ben White.

Mr. Carney tweeted that “We utterly disavow idea WH doesn’t care when it ends. House should act now, no strings attached. #JustVote.”

Later, as he got lunch at a deli near the White House, Mr. Obama was asked about the quote. He responded: “there’s no winning” and “no one is winning” as long as people aren’t on the job.

Of course, Mr. Obama has also used quotes from the opposition as fodder in the shutdown fight.

In a public appearance Thursday, President Barack Obama cited a quote from Rep. Marlin Stutzman (R., Ind.) that appeared in the Washington Examiner.

“We’re not going to be disrespected…We have to get something out of this. And I don’t know what that even is,” Mr. Stutzman was quoted as saying.

Mr. Obama , speaking at a construction company, said: “That was a quote. ‘We’re not going to be disrespected. We have got to get something out of this. And I don’t know what that even is.’ Think about that.

“You have already gotten the opportunity to serve the American people. There is no higher honor than that.”

Here is the Ben White-Jay Carney conversation on Twitter:

It’s “We are winning” vs “I don’t know what that even is” for Worst Quote of the Shutdown honors.

— Ben White (@morningmoneyben) October 4, 2013

Because if the White House does not actually care how long the shut down goes on that’s a really bad thing. Furloughed workers care.

— Ben White (@morningmoneyben) October 4, 2013

.@morningmoneyben This is absurd. POTUS wants the shutdown to end NOW. Speaker can do that NOW by putting a clean CR to a vote. #JustVote

— Jay Carney (EOP) (@PressSec) October 4, 2013

. @PressSec Jay, I am talking about the quote in the WSJ that the WH does not care how long shutdown lasts. Do you disavow the quote?

— Ben White (@morningmoneyben) October 4, 2013

.@morningmoneyben So am I, Ben. We utterly disavow idea WH doesn’t care when it ends. House should act now, no strings attached. #JustVote

— Jay Carney (EOP) (@PressSec) October 4, 2013

@PressSec fair enough. Thanks for responding Jay!

— Ben White (@morningmoneyben) October 4, 2013

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Vital Signs: Steady Unemployment, but Only Because of Part-Time Work

It’s a rare first Friday of the month when no payroll report comes out. But if the report had come out, it is likely the September jobless rate would have held at 7.3%, says Gallup.

The polling firm conducts its own survey of jobs and joblessness in the U.S. Its definitions and methods differ from those of the Bureau of Labor Statistics, the grand arbiter of labor markets, but at least Gallup released September data.

What the Gallup survey shows is that the employment situation was little changed in September. Its seasonally adjusted jobless rate fell to 7.9% after it popped to 8.6% in August. Gallup says its data suggest “when the report is released, the BLS will likely report no change in the unemployment rate.”

One troubling part of the Gallup data is the persistence of workers who cannot find full-time employment. That trend will limit consumer spending. According to Gallup, 9.4% of part-time workers wanted full-time jobs, up from 8.6% saying that in September 2012. “This suggests the decline in the unemployment rate is actually due to more Americans taking part-time jobs rather than gaining the full-time employment they want,” the report says.

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BOJ Beat: Abe Adviser Wants Stronger Commitment Fom Kuroda

One of Prime Minister Shinzo Abe’s close economic advisers has called on the head of the Bank of Japan to more clearly back up his readiness to take action should the economy suffer a sudden slump after the sales tax is raised next year.

In the recent debate over the plan to raise Japan’s sales tax, Bank of Japan Gov. Haruhiko Kuroda strongly urged the government to proceed with the hike, saying the central bank could deal with a potential economic slowdown that might come in its wake, but not the jumps in interest rates a change in plan could bring about.

“If he really means what he said, I want him to send out a strong message once again that he will take every measure available in case the economy slumps,” Shizuoka University Prof. Etsuro Honda said Thursday in an interview.

Mr. Kuroda has said that while he doesn’t expect the tax hike to derail Japan’s ongoing economic recovery, if it does, the central bank will offer additional monetary stimulus. But Mr. Honda said: “I’d like him to say that more strongly.”

Coming two days after Mr. Abe made a much-awaited decision to proceed with the plan to raise the 5% sales tax to 8% in April, Mr. Honda’s remarks suggest continued discord among policy-makers, and indicate that the central bank could find itself increasingly in the spotlight as the tax hike draws closer.

While Messrs. Honda and Kuroda have shared the view over the need for bold monetary easing to defeat deflation, they have found themselves on opposite sides during the sales tax debate since early summer.

Mr. Honda insisted that the government postpone the hike or go more slowly, saying that the economic recovery was too fragile to withstand a hike as big as three percentage points. The economic blow from it could cancel out the benefits of Mr. Abe’s “Abenomics” policy mix, and chill a growing sense of optimism among the Japanese that has helped drive the nation’s solid growth so far this year, the professor has said.

Mr. Honda said Thursday a stronger commitment by the BOJ to support the economy is now needed to keep influencing Japanese expectations, which he said holds the key to reversing chronic price falls.

“I want (the BOJ) to give a sense of assurance” to consumers, Mr. Honda said, adding that a planned Y5 trillion spending plan by the government won’t be enough to cushion the impact of the tax increase.

“There has been what we call a ‘regime change’ in Japan’s policy framework thanks to Mr. Kuroda’s initiatives, and the Japanese people believe in this,” Mr. Honda added. “But this ‘regime change’ could fall apart unless the BOJ continues to signal its stance in the most appropriate fashion, showing that it is prepared to act anytime it is necessary.”

While the BOJ may not need to take action to coincide with the tax increase, “it should act immediately as soon as the economy suffers a sharp reactionary slump in April or afterward,” Mr. Honda said. Indeed, the bank “will probably find itself with no choice but to act, as there is likely to be a significant reactionary plunge” in consumer spending, he said.

Coming during the BOJ’s two-day policy meeting which ended Friday, Mr. Honda’s call for a fresh promise of action could make investors more focused on what the BOJ governor will have to say at a press conference following the board meeting. The BOJ took no fresh action at the latest meeting, as widely expected.

The 10 economists recently polled by The Wall Street Journal say the BOJ won’t be able to achieve its 2%-inflation-in-two-years target, with many of them predicting that further monetary stimulus will take place in April.

Mr. Honda said that one option will be for the central bank to start buying mortgage-backed securities issued by the government-affiliated Japan Housing Finance Agency. With the tax hike expected to hit demand for big-ticket items, such as houses, “I believe that supplying funds into those markets will be a good idea,” Mr. Honda said.

The bank can also step up its purchases of exchange-traded equity funds and real-estate investment funds–types of assets it already buys under the aggressive easing program launched in April this year, he said.

Buying more Japanese government bonds “could have the effect of influencing expectations as it could reaffirm (the BOJ’s) commitment,” Mr. Honda said.

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Obama No-Show a (Minor) Blow for Asia Trade Talks

President Barack Obama‘s absence from a meeting of leaders from Asia Pacific dealt a symbolic blow to efforts to forge a regional trade pact.

But Mr. Obama’s no-show, due to the drama of debt-ceiling talks in Washington, has little practical effect on the trade talks.

Before news of Mr. Obama’s cancellation, the U.S. already was trying to dial down expectations of a trade deal on the sidelines of the Asia-Pacific Economic Cooperation meeting in Bali, Indonesia. Mr. Obama was to have attended an APEC leaders’ summit there on Monday and Tuesday.

Michael Froman, the U.S. trade representative, told The Wall Street Journal earlier Friday that finalizing a trade deal at the current meeting wasn’t possible.

Mr. Froman said the parties negotiating the deal were in the end-game of talks but weren’t at the finish line yet. He said the talks, though, were still on track.

For sure, negotiators in the trade talks–known as the Trans-Pacific Partnership–still have to overcome some obstacles.

Mr. Obama’s presence would have shown how much store the U.S. puts in the Asian region. (The Center for Strategic & International Studies, in a note before the cancellation, put it this way: “If Obama does not go to Asia at all, U.S. allies and partners in the region will worry that the United States is incapable of sustaining high-level engagement due to political paralysis at home.”)

But, of course, the president isn’t personally involved in the arcane details that often bedevil multilateral trade agreements. The talks were launched in 2003 by Singapore, New Zealand and Chile. The U.S. joined in 2008.

Mr. Obama has made the pact a key part of his administration’s tilt toward Asia. That involves paying more diplomatic and economic attention to the region after years of military interventions in the Middle East.

The trade talks now involve 12 countries: the U.S., Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Japan joined the talks this spring and other countries are expected to sign up. The goal is to reach an agreement by the end of 2013–but as with all trade talks (think Doha), that might be optimistic.

China isn’t yet part of the talks–although it isn’t excluded–which has added to a view the negotiations are part of the U.S.’s strategy to counterbalance China’s growing might in the region. On Friday, Mr. Froman said the participation of China in the talks was still a long way off.

The agreement could have a large impact on world trade. The U.S. doesn’t have free-trade agreements with Brunei, Japan, Malaysia, New Zealand or Vietnam, according to a report published in August by the Congressional Research Service.

There are still many areas of contention in the talks. Poorer nations like Vietnam want better access to sell their shoes and clothes in the U.S. and other industrialized nations. Some U.S.-based manufacturers, meanwhile, oppose opening their factories to competition from nations with low labor costs.

The U.S. wants better access for its service providers, especially banks, in developing nations. This is likely to be a sticking point.

Washington also will be seeking freer trade with Japan, which protects local farmers with tariffs and quotas. Japan is the U.S.’s fourth-largest agricultural export market.

U.S. dairy producers, on their side, might be worried if New Zealand’s massive dairy industry gets preferential access to the U.S. market.

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