News of the Day

The Federal Reserve on Wednesday raised its benchmark interest rate by 75-basis points for the first time in nearly three decades as policymakers intensify their fight to cool red-hot inflation, a move that threatens to slow U.S. economic growth and exacerbate financial pressure on Americans.

The 75-basis point hike, the first since 1994, underscores just how serious Fed officials are tackling the inflation crisis after a string of alarming economic reports. The move puts the key benchmark federal funds rate at a range between 1.50% to 1.75%, the highest since the pandemic began two years ago.

Officials also laid out an aggressive path of rate increases for the remainder of the year. New economic projections released after the two-day meeting showed policymakers expect interest rates to hit 3.4% by the end of 2022, which would be the highest level since 2008.

“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures,” the Fed said in its post-meeting statement.

The U.S. Energy Information Administration (EIA) forecasts that a variety of U.S. energy prices will remain historically high through 2023, including oil, natural gas, coal, and electricity, according to EIA’s June 2022 Short-Term Energy Outlook (STEO).

“We continue to see historically high energy prices as a result of the economic recovery and the repercussions of Russia’s full-scale invasion of Ukraine,” said EIA Administrator Joe DeCarolis. “Although we expect the current upward pressure on energy prices to lessen, high energy prices will likely remain prevalent in the United States this year and next.”

EIA forecasts that high natural gas and coal prices will result in an increased share of renewables in U.S. generation, largely offset by a decline in coal’s share. Wind and solar generation will likely contribute more than 11% of U.S. electricity this summer, after providing less than 10% in the summer of 2021. The natural gas share is forecast to decline over the next two years although at a slower rate than coal.

Key takeaways from the STEO forecast include:

• The Brent crude oil price will average $108 per barrel during the second half of 2022, as tight global inventories and significant geopolitical uncertainties continue to put upward pressure on crude oil prices despite an increase in production to pre-pandemic levels.
• U.S. refinery utilization will average 94% in the third quarter of 2022, close to the highest levels of the past five years. A 5% decrease in refinery capacity between 2019 and 2022 will keep refining margins above the five-year average.
• The Henry Hub natural gas price will average $8.69 per million British thermal units during the third quarter of 2022, up from May’s average of $8.13. This increase is due to strong demand for U.S. LNG exports and for natural gas in the electric power sector, which will keep U.S. natural gas inventories below their previous five-year average.
• Electricity generation will increase by 2.1% in 2022, with the largest increases from renewable energy. With the forecast addition of 20 GW of solar capacity, solar power will account for nearly half of all the new U.S. generating capacity this year.

U.S. producer prices surged 10.8% in May from a year earlier, underscoring the ongoing threat to the economy from inflation that shows no sign of slowing.

Tuesday’s report from the Labor Department showed that the producer price index — which measures inflation before it reaches consumers — rose at slightly slower pace last month than in April, when it jumped 10.9% from a year earlier, and is down from an 11.5% yearly gain in March.

On a monthly basis, producer prices climbed 0.8% in May from April, above the previous month, when they increased 0.4%.

Energy prices, led by gas, rose 5% just in May from April. Another big driver of the price gains last month was a sharp 2.9% increase in the cost of truck freight hauling, a sign that supply chain problems still aren’t fully resolved. Food costs were unchanged.

The Federal Reserve is expected to hike its short-term interest rate by three-quarters of a point on Wednesday, the largest increase since 1994, as it ramps up its efforts to rein in higher prices.

The producer price data captures inflation at an earlier stage of production and can sometimes signal where consumer prices are headed. It also feeds into the Federal Reserve’s preferred measure of inflation, the personal consumption expenditures price index.

Last Thursday, the Internal Revenue Service announced an increase in the optional standard mileage rate for the final 6 months of 2022. Taxpayers may use the optional standard mileage rates to calculate the deductible costs of operating an automobile for business and certain other purposes.

For the final 6 months of 2022, the standard mileage rate for business travel will be 62.5 cents per mile, up 4 cents from the rate effective at the start of the year. The new rate for deductible medical or moving expenses (available for active-duty members of the military) will be 22 cents for the remainder of 2022, up 4 cents from the rate effective at the start of 2022. These new rates become effective July 1, 2022.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Midyear increases in the optional mileage rates are rare, the last time the IRS made such an increase was in 2011.

Dozens of GOP lawmakers are asking federal environmental regulators to lift a requirement for Wisconsin drivers to use reformulated gasoline to save people money. The request comes as gas prices have surged to record highs.

A letter sent Tuesday and spearheaded by Assembly Speaker Robin Vos, R-Rochester, asked the U.S. Environmental Protection Agency to consider waiving the federal regulation for reformulated gasoline. Reformulated gasoline is gas that’s blended to burn cleaner to reduce vehicle emissions that can form smog or ozone pollution. The requirement is part of changes that Congress made to the Clean Air Act in 1990.

In Wisconsin, reformulated gas is required in areas of southeastern Wisconsin that aren’t meeting federal smog regulations. They include the cities of Milwaukee and Racine in addition to Milwaukee, Ozaukee, Waukesha, Racine, Sheboygan and Kenosha counties.

“The thing that’s most immediate to an awful lot of folks that I talk to is the price of gas,” Vos told Wisconsin Public Radio on Thursday. “If there’s something that, by the stroke of a bureaucrat’s pen, could reduce the price of gasoline by up to 40 cents a gallon, I don’t know why that wouldn’t be the first thing that we do, to try to help give some real relief to Wisconsin consumers.”

The American Automobile Association said the average price for a gallon of gas in Wisconsin was $4.91 on Thursday — up 30 cents from last week and 80 cents from one month ago.

The EPA can waive the fuel blending regulation if the agency’s administrator finds extreme and unusual fuel supply constraints exist, according to the letter. The agency can also issue a waiver if those constraints were the result of a natural disaster or a similar unforeseen event, and it is in the public interest.

“With the pandemic, swelling prices due to inflation, the war in Ukraine, and President Biden’s Executive Orders impacting the oil and gas industries, we feel all three exceptions have been met, giving the EPA the ability to authorize a waiver of the (reformulated gasoline) requirements,” wrote lawmakers in the letter.

The EPA said in a statement that it’s reviewing the letter from lawmakers.

The U.S. Government Accountability Office (GAO) has added the Unemployment Insurance (UI) system to its list of federal areas at “High Risk” for waste, fraud, abuse, and mismanagement, or in need of broad-based transformation. GAO is adding the system to the list now, in advance of a regular update scheduled for next year, to bring greater attention to the challenges facing UI and to help spur needed changes. GAO’s concerns are outlined in a new report being issued today, which describes critical weaknesses in how UI carries out its mission and also includes options panelists suggested for transforming the system.

The UI system’s persistent difficulties in balancing effective service delivery and mitigating financial loss made it more difficult to successfully launch temporary programs to help unemployed workers during the COVID-19 pandemic. The unprecedented demand for assistance and the need to get the programs up and running quickly resulted in serious challenges for states and a greater risk of improper payments, including those due to fraud.

GAO and others have cited weaknesses in UI administration that have undermined states’ ability to effectively meet the needs of unemployed workers, including during economic downturns such as the one associated with the COVID-19 pandemic. Current program design and variation in how states run UI have contributed to a shrinking portion of unemployed workers receiving benefits and disparities in benefit distribution. During the pandemic, problems with customer service, timely claims processing, and the implementation of new programs became evident. GAO and the Department of Labor (DOL) Office of Inspector General have also noted the need to modernize state IT systems.

Over the years, DOL regularly reported billions of dollars in annual UI improper payments. The problem intensified during the pandemic, with estimated improper payments rising from approximately $8.0 billion in fiscal year 2020 (a 9.2 percent rate) to about $78.1 billion in fiscal year 2021 (an 18.9 percent rate). The total amount of UI improper payments is unknown due to incomplete reporting by DOL and the states, but fraud is a growing problem. The main cause for the increase in fraud during the pandemic was identity theft, according to DOL. From March 2020 through January 2022, hundreds of individuals either pled guilty to defrauding UI programs or had federal charges pending against them.

State health officials are free to release data that would identify which employers have experienced COVID-19 outbreaks, the Wisconsin Supreme Court ruled Tuesday.

In an opinion issued Tuesday morning, the state’s highest court stated that three business lobbying groups had no basis to block release of the data, which was prompted by a news media open records request.

The justices, in a 4-3 opinion written by Justice Rebecca Dallet, concluded that a 2003 revision to the state open records law “makes clear that no one has a right to block the release of a public record unless otherwise specified” under very narrow circumstances. Justices Ann Walsh Bradley, Brian Hagedorn and Jill Karofsky joined in the majority.

Early in the COVID-19 pandemic the Milwaukee Journal Sentinel filed an open records request asking DHS for the names of all Wisconsin businesses with more than 25 employees and where at least two people had tested positive for COVID-19 or were identified through contact tracing as “close case contacts” of COVID-19 patients.

The request was made at a time when workplace outbreaks of COVID-19, particularly in industries such as meatpacking where large numbers of people work in close quarters, had raised concerns about worker safety in the pandemic.

The newspaper’s request did not seek information identifying individual patients. At the rest of DHS, the request excluded employers with 25 or fewer employees, because in smaller work groups it would be easy to narrow down the data to individuals.

Elizabeth Goodsitt, a communications specialist for DHS, said Tuesday that the department must await further action by the circuit court before releasing any records.

“DHS remains temporarily enjoined from releasing any information relating to businesses whose employees have tested positive for COVID-19 or who contract tracing has shown close connections,” Goodsitt told the Wisconsin Examiner. “The Supreme Court did not order the release of records and instead remanded the case to circuit court. Procedurally, the case is not concluded until the circuit court so orders. DHS welcomes today’s decision, and it will continue its work to provide the public with timely, accurate information about COVID-19.”

Kohl’s Corporation has entered exclusive negotiations with retail store operator Franchise Group, Inc. over a potential sale of the department store chain, valuing it at nearly $8 billion, the companies said late on Monday. The bid of $60 per share constitutes a premium to Kohl’s closing price of $42.12 on Monday, giving it a market value of about $5.4 billion.

Franchise Group, owner and operator of retail stores such as The Vitamin Shoppe and Buddy’s Home Furnishings, said the companies have entered into a three-week-long exclusive discussion.

“The purpose of the exclusive period is to allow FRG and its financing partners to finalize due diligence and financing arrangements and for the parties to complete the negotiation of binding documentation,” Kohl’s said.

Kohl’s said the deal is subject to board approval and provided no assurance that an agreement would be finalized.

The Wisconsin-based department store chain was under pressure after activist investors Macellum Advisors GP LLC and Engine Capital LP called on Kohl’s earlier this year to sell itself.

Net withdrawals of natural gas from U.S. storage totaled 2,264 billion cubic feet (Bcf) this winter (November through March). This amount is the most natural gas withdrawn from storage since the winter of 2017–18 and 10% more than the previous five-year (2016–17 to 2021–22) average. Typically more natural gas is withdrawn from storage in the United States than is injected during the winter heating season as demand (including consumption and exports) exceeds supply (including production and imports). During the heating season, natural gas must be drawn from storage to meet this excess of demand over supply.

On average, demand for natural gas in the United States exceeded supply by 14.9 billion cubic feet per day (Bcf/d) this past winter. Average U.S. supply and demand of natural gas both set record highs this past winter with supply at 104.3 Bcf/d and demand at 119.2 Bcf/d. U.S. natural gas supply and demand had been further out of balance during the winter of 2017–18, resulting in more natural gas withdrawn from storage that winter.

Production of dry natural gas increased in the United States last winter compared with the one before, averaging 95.6 Bcf/d, or close to the 2019–20 winter record of 96.0 Bcf/d. U.S. production has been generally increasing since 2020, after declining because of lower prices and reduced natural gas demand, but natural gas production during the winter did not reach its pre-COVID-19 pandemic level. Imports of natural gas also increased last winter compared with the one before, averaging 8.7 Bcf/d.

The time frame for Social Security and Medicare to go-broke has been pushed back, helped by a stronger-than-expected economic recovery from the coronavirus pandemic.

The annual Social Security and Medicare trustees report says the Social Security trust fund will be unable to pay full benefits beginning in 2035, instead of last year’s estimate of 2034. The projected depletion date for Medicare’s trust fund for inpatient hospital care moved back two years to 2028 from last year’s forecast of 2026.

According to the report, “Economic recovery from the 2020 recession has been stronger and faster than assumed in last year’s reports, with positive effects on the projected actuarial status of the trust funds in these reports.”

Social Security pays benefits to more than 65 million Americans, mainly retirees as well as disabled people and survivors of deceased workers. Medicare covers roughly 64 million older and disabled people.

A main source of financing for the programs is payroll taxes on earnings paid by employees and employers. About 183 million people paid those taxes in 2021.