Fed redefines the unemployment range it considers acceptable

WASHINGTON — The Federal Reserve was in a tough spot: The February U.S. unemployment rate of 5.5 percent is right where the Fed had been saying inflation would likely start to accelerate. Yet inflation remains even lower than the Fed wants it to be.

So on Wednesday, the Fed simply moved the goalposts.

It now says unemployment could fall as low as 5 percent to 5.2 percent before inflation pressures would probably start to build. That's down from its previous range of 5.2 percent to 5.5 percent.

That shift is a big reason many analysts think the Fed has in effect postponed the date when it will start raising the short-term interest rate it controls. Many now expect it to start raising rates in September or even later after having previously predicted June.

Investors welcomed the possibility of lower rates for longer, sending the Dow Jones industrial average up 227 points.

"With the stroke of a pen, rather than being at the top end of full employment ... we're farther away," said Allen Sinai, chief economist at Decision Economics.

As the unemployment rate falls, it typically reaches a level at which employers must raise pay to find qualified workers to hire. Those employers then raise prices to offset the higher wages they're paying, which usually accelerates inflation. The unemployment rate that triggers higher prices is generally considered "full employment."

At her news conference Wednesday, Chair Janet Yellen said the Fed's new lower range for acceptable unemployment "suggests that (Fed officials) are seeing more slack in the economy now than they previously did."

That, in turn, implies that rates will rise more slowly than many had assumed. Separate forecasts by Fed officials show they now expect the Fed's short-term interest rate to be much lower at the end of this year and next than they thought in December.

The Fed had little choice but to make the change to acknowledge economic reality, analysts said. Paychecks for most Americans have barely kept up with inflation since the recession officially ended 5½ years ago.

"If we were even close to full employment, we would be seeing more pressure on hourly earnings by now," said Richard Moody, chief economist at Regions Financial. "They are just adjusting to that reality."

The Fed had lowered the upper end of its full-employment range as recently as June 2014. But the lower end had stood at 5.2 percent since April 2011, according to Michael Gapen, an economist at Barclays.

There are no clear guidelines for what the full employment rate is. In the late 1990s, the Fed chose not to raise rates even as the unemployment rate fell. It eventually touched 3.9 percent without igniting inflation.

It "does move around a bit and is unobservable," said Paul Ashworth, chief U.S. economist at Capital Economics. "It is a genuine puzzle."

The Fed made other changes to its forecasts Wednesday after its latest policy meeting ended. It now predicts:

— Growth will be much slower through 2017 than it predicted in December. It now foresees growth of roughly 2.5 percent this year and next, down from 2.8 percent and 2.75 percent, respectively. Growth will then slow to about 2.2 percent in 2017, down from 2.4 percent, it predicts.

— Even with slower growth, unemployment will keep falling. The Fed now forecasts that the unemployment rate will be about 5.1 percent at year's end, down from its previous estimate of 5.25 percent. Next year, it will drop to 5 percent and in 2017 to 4.95 percent, it predicts.

— Inflation will be even lower this year, between 0.6 percent and 0.8 percent, down from the 1 percent to 1.6 percent it forecast in December. But Fed policymakers didn't cut their outlook as much in later years: They still project that inflation will be near their 2 percent target in 2016 and 2017.

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GOP defense hawks, fiscal conservatives battle over budget

WASHINGTON — A battle between GOP defense hawks and fiscal conservatives prompted the GOP chairman of the House Budget Committee late Wednesday to delay a vote on his party's budget blueprint.

Rep. Tom Price, R-Ga., called off a vote on a move by GOP leaders to loosen restrictions on using war funding to skirt tight limits on the Pentagon budget. That delays a vote on the underlying budget, which would set up a veto struggle over the fate of the health care law and promises a whopping $5 trillion in spending cuts to erase deficits by the end of the coming decade.

Billions more for the Pentagon were Republican priorities in both House and Senate, but pushback from fiscal conservatives against spending increases appeared to force Price's hand.

At the same time, there were significant differences between the day-old proposal in the House and the one unveiled Wednesday by Senate Republicans.

Defense spending aside, Medicare was chief among them. Senate Republicans, already eying the 2016 elections, balked at a politically sensitive House plan to turn health care coverage for seniors into a voucher-like program for those who enroll beginning in 2024.

Republicans claimed a balanced-budget, no-tax-increase approach, but the House Budget Committee had to scuttle a vote Wednesday. The Senate Budget panel was set to convene Thursday morning with a vote planned for the afternoon.

Senate Majority Leader Mitch McConnell of Kentucky said the Republicans promise a plan "that will support economic growth and more opportunity for hardworking families, while protecting our most vulnerable citizens."

By contrast, McConnell said President Barack Obama's budget from earlier in the year raised "taxes by nearly $2 trillion, and increased the national debt by more than $7 trillion. In other words, it was more of the same old tired, failed policies of the past."

Obama leaned in.

Claiming credit for the improving economy, he said Republicans offer "a path to prosperity for those who have already prospered." Reprising a criticism he leveled in his winning 2012 campaign against Mitt Romney, he said in Cleveland that the GOP budget "doubles down on trickle-down."

It will be weeks or months — if then — before Republicans can turn their non-binding blueprints into legislation and send it to the White House for Obama's signature or veto.

Before that, they will concentrate on pushing the rival budgets through the two houses. Next, they will try to agree on a compromise that they concede will stand as a test of their ability to govern.

Republicans promised during last fall's campaign they would try to balance the budget if they won power. They also said over and over they would work to eradicate the health care law that Obama has pledged to defend and the administration now says has provided coverage to more than 16 million individuals who previously lacked it.

Details contained inside the budgets make a veto struggle with Obama over the health care law a virtual certainty, although the Supreme Court could largely render that moot in a ruling is expected this spring on the constitutionality of a key portion of it. Senate Republicans said they intend to use legislation that Democrats cannot block to accomplish their goal of repeal.

Both budgets envision a significant campaign to cut spending, with much of the projected savings coming from Medicare, Medicaid, food stamps and welfare.

Defense spending remained a work in progress. The House proposal, if amended as pro-Pentagon members would like, recommended hiking existing funding by $38 billion next year along the lines of Obama's February budget. Parliamentary tangles blocked them from simply increasing core Pentagon accounts like Obama proposed; instead they pad an overseas account that has financed the wars in Iraq and Afghanistan.

As drafted, the Senate budget recommended the same total as Obama, although defense hawks including Lindsey Graham, R-S.C., worked behind the scenes to engineer a rewrite that would raise it to roughly the same level as the House and Obama.

Both Republicans and the White House have indicated they would like to ease cuts to the Pentagon and domestic agencies both for the next couple of years and replace them with longer-term cuts and, perhaps, new revenues, much as was the case in 2013.

To achieve their core campaign commitment, Republicans in both houses resorted to a series of sleights of hand.

Both budgets assume that dozens of popular tax breaks will be allowed to expire. One allows businesses to offset the cost of research and development, and another allows individuals and families to deduct the cost of sales tax in states with no income tax. Together, the cost of renewing all of them totals $900 billion, money not in either budget.

Both budgets also estimate large savings from the economic benefit of implementation of their spending proposals — $164 billion over a decade in the Senate, $147 billion for the House.

Without these amounts, the Senate budget would be unable to show even its minuscule $3 billion surplus for 2025, or the House its $46 billion in black ink in 2024 and 2025 combined.

In addition, the Senate budget offers no explanation for a sudden $191 billion jump in savings from benefit programs in 2025.

____

Associated Press writer Josh Lederman in Washington contributed to this report.

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Massport boss: No hotel bid info for now

The head of Massport told the Herald yesterday he has no intention of publicly releasing the six bids to build an $800 million "headquarters hotel" on 
authority-owned land as part of the $1 billion Boston Convention & Exhibition Center expansion — at least until after the developer is selected later this summer.

"Should the bids be made public at this early stage, it would undercut the public sector's ability to negotiate a good deal," Massport CEO Thomas P. Glynn said in an interview after his authority, citing state law, turned down a Herald public records request seeking copies of the bids. "If each of the bidders knew what the other had bid … you would lose leverage."

Glynn, however, left open the possibility of releasing the names of equity partners and other silent investors hidden behind limited liability corporations that are among those vying to build the 1,000- to 1,200-room hotel across from the Boston Convention & Exhibition Center.

"I certainly have not ruled it out," said Glynn, calling the Boston Redevelopment Authority's new policy of forcing developers to disclose investors in a project a "good idea. We have not requested that information from the bidders. We don't have a fact base to have an opinion on that yet."

The Herald reported yesterday that two former members of the Massachusetts Convention Center Authority's board, former U.S. Sen. William "Mo" Cowan and Congress Group founder Dean Stratouly, are part of a development team behind an Omni Hotel and Resorts-backed bid.

Cowan, former Gov. Deval Patrick's chief of staff and chief legal counsel, served on the MCCA board for two years, until 2010. Stratouly served on it for 12 years. State law provides for a one-year cooling off period before investing in a project that fell under their official purview — both Cowan and Stratouly have passed that period.

"When high-ranking officials leave office and return seeking contracts and approvals from the agencies they led, it creates a genuine vulnerability to unfair influence and skepticism in the minds of the general public and business competitors," said Gregory W. Sullivan, former state Inspector General and now at the Pioneer Institute. "The Legislature should toughen the anti-revolving door laws."

Sullivan, whose testimony last June at a state Senate hearing helped lead to the stripping of $110 million he alleged was a hidden state subsidy to build the hotel as part of the $1 billion convention center expansion bill, said MCCA deals need "to be free of any political influence."

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China announces audit of state company assets abroad

BEIJING — The Cabinet agency that oversees China's biggest banks, oil producers and other government companies has announced plans to have outside auditors examine their foreign assets in a new move to tighten control over state industry.

The announcement comes amid a spreading anti-corruption crackdown led by President Xi Jinping in which executives of companies including PetroChina Ltd. and China Mobile Ltd. have been detained.

The State-Owned Assets Supervision and Administration Commission announced Monday it was soliciting tenders from outside auditors for contracts to examine the companies. It said the firms chosen must be incorporated in China and local branch offices are ineligible, which would rule out the use of foreign firms.

State-owned banks and oil, mining and other companies are quickly expanding their investments abroad, especially in buying resource assets in Africa, the Americas and Australia.

The audit is intended to "address growing concerns about lack of transparency" about the assets of state companies, the official Xinhua News Agency said.

The foreign assets of the 110 state companies directly controlled by the Cabinet were estimated at 4.3 trillion yuan ($700 billion) at the end of 2013, according to Xinhua.

This week, the party announced the vice chairman of PetroChina, Asia's biggest oil and gas producer, was under investigation for what the company was a possible discipline violation, the party's term for corruption.

The company and its parent, China National Petroleum Corp., are among China's biggest foreign investors. At least four other executives of PetroChina or CNPC have been detained.

Beijing has encouraged state companies to expand abroad and has eased controls on their activities as part of efforts to diversify the Chinese economy.

That has led to complaints managers of politically influential state companies might be misusing their assets.

Among other things, Chinese economists believe a big share of foreign investment into China really comes from units of state companies abroad that are improperly trying to take advantage of tax breaks and other incentives.

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Business Protocol: Make ‘Madness’ work at work

The phenomenon known as "March Madness" has officially launched, and it's predicted that more than 60 million Americans will participate in some way.

The question is: Will any work get done?

Employees across the nation are sure to take time out of their workdays this week to research matchups, make selections and complete their brackets.

If you're a manager, brace for the chaos. The cost of lost wages paid to preoccupied and unproductive workers could reach 
$1.9 billion, according to outplacement firm Challenger Gray & Christmas Inc.

Sports has long been renowned for its inherent ability to bring people together. Capitalize on it.

Companies have an opportunity to use the legendary NCAA college basketball tournament as a team-building experience.

The tourney can be used to help bolster morale and encourage interactions among co-workers and clients who may not normally cross paths. Astute managers will respond to the call.

The reality is, anyone with an iPhone or tablet can access March Madness updates on company time. As long as people are clearly going to engage, a manager can acknowledge the tradition and set some rules.

Managers should have a plan. Establish rules early, roll them out and be bold. Mandate any NCAA activity be done on an employee's own time — during lunch, on their break or after work.

Or, try to be more creative. Designate "bracket breaks" to help build camaraderie, using this to your firm's advantage. Build 15-minute "bracket updates" into the day.

Create a company-wide office pool (free to enter) and offer a free lunch or gift card for the winner and post results on office pools.

Note: If money is on the table, this could get dicey and out-of-hand.

Employees should honor management's initiative in opening this up, respect rules and boundaries established and use this as an opportunity to schmooze clients!

Above all, especially after the long, hard, record-breaking winter, enjoy the activity, the camaraderie and the winnings. Have fun with March Madness … especially if you have a sales force!

Judith Bowman is president and founder of Protocol Consultants International and author of "Don't Take the Last Donut: New rules of Business Etiquette" and "How to Stand Apart @ Work … Transforming 'Fine' to Fabulous!" Email her at Judith@protocolconsultants.com.

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Report finds underinvestment in T a ‘myth’

A new report by a conservative think tank is calling the MBTA's claims that systemwide failures this winter were caused by years of underinvestment a "myth."

The Pioneer Institute argues that, as measured by both passenger miles traveled and vehicle hours in service, the T received the most capital funding of the nation's 10 largest transit systems between 1991 and 2013. Funding for T capital improvements like expansion and facilities upgrades was higher than systems in Washington, D.C., Philadelphia, New York City, Los Angeles, Chicago and New Jersey.

T spokesman Joe Pesaturo said, "The challenges this winter have made it clear that the MBTA has obstacles to overcome. The MBTA will continue to work closely with Gov. (Charlie) Baker's office, which appointed an expert panel to assess the T's finances and operations."

Pesaturo also noted that the T is about $1.7 billion in debt for Big Dig-related spending, with annual debt service of about $140 million.

The Pioneer Institute countered that the federal government did not order the T to undertake projects like building a commuter line to the South Shore as a condition of its contribution to the Big Dig.

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Inspector Gadget: Don’t snooze on this sleep tracker

Withings Aura ($299, various retailers)

There are lots of sleep-monitoring devices on the market these days, but this is one that is supposed to actually help you fall asleep and wake up. With a light-emitting bedside alarm clock and a connected sensor that monitors your movements and heartbeat, this is a very intriguing piece of technology.

The good: Well-
designed, futuristic-
looking and easy to use, the Aura lulls you to sleep with peaceful nature sounds and a melatonin-inducing red spectrum light.

An iOS app collects all of your data on REM and deep sleep. And it does a good job of waking you up at the right time in your sleep cycle.

The bad: If there's someone else in the bed, your tracker may be skewed by their movements. Also, the price is a bit steep.

The bottom line: If you're an insomniac who sleeps alone, then this sleep tracker is one to consider.

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Booting Up: Chang’s embrace of technology intrigues

Tommy Chang, Boston's incoming superintendent of schools, wants to talk about something called the three-screen day — where students are focused on learning content, producing content and sharing content on a computer, tablet and smartphone — nearly all day long.

"I'm not saying this is what Boston Public Schools is moving toward," said Chang, 39, a top Los Angeles administrator with a background in charter school innovation, 
recently chosen for the top job in Boston. "I'm saying this is something we should be discussing: How do we create an education system that leverages technology?"

I called Chang on Friday wanting to chat about the three-screen day concept, and I had my arguments at the ready. Chang got back to me almost immediately. But he didn't just make his case: He cited books, education researchers and a specific institution in Los Angeles, the Incubator School, that embodies his philosophy. And I realized something: The three-screen day idea is meant to be provocative. It's Chang's way of getting people talking about innovation in education.

I went in fearing that Chang wanted to shove tablets and smartphones in the hands of kindergarteners, and came out believing that Boston's incoming school chief wants schools to be more like incubators, and each classroom like a startup, where students are the entrepreneurs of their own education, tinkering and testing as they would in a laboratory.

"The mayor has called on all of us to drive innovation," Chang said. "And to ask how we reinvent our schools to be vastly different, and how does Boston become a model for what public education looks like."

Technology has a leading role at the Incubator School that Chang mentioned. But it's equally about making learning relevant to students' lives. They develop prototypes and create their own little businesses. And in online testimonials, they talk about finding friends and acceptance.

If you're a luddite — the type of person who thinks that wooden toys were good enough for Thomas Jefferson, so why not our kids? — then Chang won't be your favorite superintendent.

But if you think technology must be woven though all aspects of education so that our classrooms are laboratories that nurture the next generation of entrepreneurs, then Chang is your man.

And if you're wrestling between those two extremes, like most people — if you know Boston Public Schools need to change and you know that innovation must play a central role — then you'll find Chang's ideas bold, thought-provoking, and you'll want to continue the conversation with him.

"Twenty years from now, should learning exist with a kid going to school at 8 a.m. and going to school six periods a day and going home and doing work?" asked Chang. "Is that really what learning should look like? I don't think so. And I think Boston can lead that conversation."

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Juries in the drivers' seats

Two federal lawsuits brought by a Boston labor attorney are going to trial thanks to rulings by federal judges in California last week — with vast implications for Uber and Lyft.

"The judges soundly rejected the companies' arguments that they are not in the car business, they are a technology business," said Shannon Liss-Riordan, the attorney who brought the suits.

Two judges both denied a motion for summary judgment, ruling that the cases would have to be decided by juries.

The suits center on how Uber and Lyft classify their drivers. The companies claim the drivers are independent contractors, but Liss-Riordan and her clients say the drivers should be treated as full employees. By classifying drivers as independent contractors, Uber and Lyft avoid having to pay for benefits including unemployment insurance, worker's compensation and overtime. If the companies are required to pay their drivers as employees, it would mean a huge change to their business model.

"Companies like Uber and Lyft save enormously on their labor costs by calling their workers independent contractors," she said.

The problem, the two federal judges said separately, is that neither the legal definition of employee or contractor seems to describe Uber and Lyft drivers.

Uber and Lyft drivers can choose their own hours and accept or reject ride requests, like independent contractors. However, like employees, the drivers are subject to control and potential termination at will by the ride-for-hire companies.

"The jury in this case will be handed a square peg and asked to choose between two round holes," Judge Vince Chhabria wrote of the Lyft case.

"The application of the traditional test of employment — a test which evolved under an economic model very different from the new 'sharing economy' — to Uber's business model creates significant challenges," wrote Judge Edward Chen in the Uber case. "Arguably, many of the factors in that test appear outmoded in this context."

The lawsuits will only apply to California right now, but another case that would apply to Massachusetts is ongoing. The companies have come under fierce fire in Massachusetts, largely by taxi companies and cab drivers who claim they are being driven out of business.

Traditional employment laws have a long way to go to catch up with the rise of the so-called gig economy, said Pat Petitti, chief executive of HourlyNerd, which connects freelance consultants with companies looking for outside expertise.

"Neither the employee or contractor definition fits what an Uber driver does," he said. "The traditional definitions for an employee and contractor are not correct — they don't work in a world like this, where technology is changing the workforce."

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BCEC expansion weighed against other needs

Boston officials yesterday weighed in on the debate over spending $1 billion to expand the Boston Convention & Exhibition Center amid a deep budget deficit and a crumbling public transit system.

"In difficult economic times we have to look at every single thing ... and determine what's best for now and the long term," said Boston City Councilor Tito Jackson. "Everyone has to take a look at their budgets. We need to look at the T not only as transportation, but as critical infrastructure, and it's literally the driver of our economy."

The Herald reported yesterday the convention center authority's expansion committee held an emergency closed-door session over fears the bond offering meant to pay for the expansion would be cut by Gov. Charlie Baker.

Mayor Martin J. Walsh yesterday said he supports the convention center expansion, which backers say will draw bigger — and more lucrative — shows to Boston, but said the T is in desperate need of a fix.

"The governor has to look at the budget, look at the numbers and how they work for him, but I'll be talking to him as well. I think the expansion of the convention center is about economic development and the future of our city, and this region," Walsh said. "Certainly the governor has a big concern with the MBTA ... it's not going to be one easy fix, the governor inherited a big problem here."

During the Massachusetts Convention Center Authority's public meeting on Friday, MCCA head Jim Rooney said he "has a high level of confidence" that the project will go forward.

Baker remained noncommittal on his plans yesterday, saying his administration needs to look at the numbers involved.

"We're just getting started on the capital budget, and until we have a better understanding about where the capital budget sits — not just for this year but for the next year and the year after — we're not going to say much more about it than that," Baker said. "We need to do a thorough deep dive on the capital budget before we talk about specifics or proposals."

Baker said his administration will spend the next 30 days reviewing capital projects.

In January, Baker told the MCCA he would delay the bond offering until March 30, to give the incoming administration time to review the project. The expansion will add 1.3 million square feet to the South Boston expo center.

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