Photo by Robert Galbraith/Reuters)

Janet Yellen, head of the Federal Reserve, will give a press conference Wednesday afternoon after the central bank issues its regular statement on monetary policy at 2 p.m. Given instability abroad and a dollar that is increasing in value faster than at any point in decades, investors worldwide will be listening closely to what she has to say, and so will we.

The real question for Yellen and her colleagues is to what degree the increase in the dollar endangers the U.S. economy. Bentley University's Scott Sumner argues the dollar is nothing to worry about, but Tim Duy of the University of Oregon is still concerned. It's up to the Fed, he says, to determine what the changing value of the dollar means for the U.S. economy, and if the central bank raises rates too early, U.S. exporters will lose business.

Number of the day: $1.1 trillion. That's the size of "the magic asterisk" in House Republicans' budget plan -- that is, the amount the budget claims to save without explaining how. The Washington Post.


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What's in Wonkbook: 1) FOMC meeting 2) Opinions, including Milbank on the GOP budget 3) Netanyahu wins, and more

1. Top story: Yellen will speak after Fed meeting

The Federal Reserve has to make a tough choice about the economic recovery once again. "The U.S. central bank's latest policy meeting will conclude with certainty expected on one point: it will likely discard a pledge to remain 'patient' before hiking rates, trimming one of the final verbal cues it has used through crisis, recession and recovery to describe its intent to keep rates near zero for a period of time. ... While the turn in language would open the door to an initial rate hike as early as June, the uncertain path of the global economy remains a dilemma for central bank officials who say they want more confidence in the U.S. recovery and the eventual rise of inflation." Howard Schneider and Michael Flaherty for Reuters.

New data on the economy in the past few weeks have been worrisome. "A number of signals in recent days — including industrial production, retail sales and housing starts — point to sluggishness, and have led private economists to downgrade forecasts for first-quarter growth. The downbeat shift in economic data complicates matters for Fed policy makers, who have been burned by faltering growth several times during the recovery and want to be convinced the economy is sound before boosting interest rates. ... Still, it isn’t clear how much of the slowdown may result from harsh winter weather and how much from underlying weakness in the economy. Additionally, the economy has been buffeted by other factors, including the strengthening U.S. dollar, which could crimp U.S. exporters by making their goods more expensive, and the collapse in oil prices that may be hurting U.S. energy producers and related industries." Josh Zumbrun in The Wall Street Journal.

Investors and finance officials around the world are nervous. "Ray Dalio, founder of the $165bn hedge fund group Bridgewater Associates, said in a note to clients and followers that he was avoiding large bets on the financial markets for fear that the Fed’s expected change of policy could have unintended consequences. The note emerged as Christine Lagarde, head of the International Monetary Fund, warned on Tuesday that US rate increases could trigger instability in emerging markets." Henry Sender, Stephen Foley and Sam Fleming in The Financial Times.

They don't really know what to expect after the Fed drops its explicit promise to be "patient." "The central bank for years has been using carefully chosen words about the likely level and direction of short-term rates as policy tool, hoping promises about the future will influence other borrowing costs today, such as the level of long-term rates on mortgages or car loans. The approach has become particularly important since December 2008, when the Fed pushed its benchmark federal funds rate to zero amid the financial crisis and began promising it would stay there for an extended period. ... In addition to signaling that the Fed expects to consider raising rates later this year, the move away from a patience promise is part of the central bank’s broader effort to avoid pinning itself down in the future. Fed officials themselves are uncertain about when to start the process of raising rates and want flexibility to respond to new information about how the economy is evolving." Jon Hilsenrath in The Wall Street Journal.

The Fed's decisions will have major implications abroad. "The soaring value of the American dollar is rippling across the globe. As it rises, it is threatening emerging economies where companies have taken on trillions’ worth of dollar-based debt in recent years. The dollar rally has been driven by decisions by the Federal Reserve... Years of low-interest-rate policies from the Fed have encouraged companies in these fast-growing economies to borrow dollars because they could do it more cheaply than if they took out loans in their local currencies, like the Indian rupee or Brazilian real. ... when the value of the dollar rises, suddenly companies find that they need more of their local currency to pay back the dollars that have since gained in value." Neil Irwin in The New York Times.

When Fed does raise interest rates, it might not be by all that much. "In December, the Federal Reserve’s open market committee revealed that nine of its 17 members expected to raise the federal funds rate to 1.125 percent by the end of 2015. Yet just three months later, the crumbling in the value of the euro, persistently low inflation, and modest economic growth in the United States have convinced most analysts that the Fed will not come close to hitting those numbers." Steven Mufson in The Washington Post.

WOLF: Central bankers worldwide have no choice but to keep rates low. The global economy suffers from "a tendency towards chronically deficient demand. The most plausible explanation lies in a glut of savings and a dearth of good investment projects. These were accompanied by a pre-crisis rise in global current account imbalances and a post-crisis overhang of financial stresses and bad debt. The explosions in private credit seen before the crisis were how central banks sustained demand in a demand-deficient world. Without them, we would have seen something similar to today’s malaise sooner." The Financial Times.

2. Top opinions

MILBANK: The House GOP budget is a gimmick. "It pretends to keep strict limits on defense spending — so-called 'sequestration' — but then pumps tens of billions of extra dollars into a slush fund called “Overseas Contingency Operations.” That means the funds count as emergency spending and not as part of the Pentagon budget. It assumes that current tax cuts will be allowed to expire as scheduled — which would amount to a $900 billion tax increase that nobody believes would be allowed to go into effect. It proposes to repeal Obamacare but then counts revenues and savings from Obamacare as if the law remained in effect. ... It assumes more than $1 trillion in cuts to a category known as 'other mandatory' programs — but doesn’t specify what those cuts would be. It relies on $147 billion in additional revenue from 'dynamic scoring,' a more generous accounting method." The Washington Post.

Republicans must agree on a serious proposal. "The main obstacles to getting 218 votes are tea party free agents who want government to shrink faster, and defense hawks and some appropriators who want to break the spending caps that are enforced by the sequester passed in 2011. Both groups should understand that without the budget passing they have no chance of getting anything close to what they want. ... The House and Senate will have to reconcile their separate outlines into a single bill that does not require Mr. Obama’s signature. The budget is thus a chance to offer the public a serious reform agenda that is an alternative to the high-tax, slow-growth entitlement state of Mr. Obama and Hillary Clinton. It is also a particular test of whether Republicans can operate as a functioning majority." The editorial board of The Wall Street Journal.

PORTER: Universal welfare programs may help those who don't need it, but they're more popular. "Social Security and Medicare remain the most politically robust bits of the United States’ social insurance apparatus — survivors of repeated attempts at privatization. Almost everything else, including food stamps and child subsidies for the poor, is vulnerable. ... Carefully targeted social insurance financed by progressive taxes is likely to be both stingy and politically weak. And even if some programs like the earned-income tax credit can be hidden from view, as 'tax deductions' rather than benefits, there is a point when such subterfuge may no longer work." The New York Times.

WEISSMANN: Let's accept that a changing national culture has eroded the two-parent family and move on. "Nothing is going to quickly reverse 50 years of national evolution away from the Leave It to Beaver days. Moreover, how many people would want to? Last I checked, most women value the autonomy that divorce and birth control have given them. Many of those shotgun marriages ended in miserable, abusive relationships. And getting hitched young doesn’t make a great deal of sense in an era when going to college, and moving to cities where jobs are plentiful, are such enormous keys to financial wellbeing. Instead of pining for the past, we could could be doing far, far more as a country to reduce material need for low-income families." Slate.

CARROLL: Alcohol is worse for kids than marijuana. "It’s assumed, and not incorrectly, that the vast majority of adolescents will try one or the other, especially when they go to college. ... Alcohol use is a factor in 40 percent of all violent crimes in the United States, including 37 percent of rapes and 27 percent of aggravated assaults. No such association has been found among marijuana users. Although there are studies that can link marijuana to crime, it’s almost all centered on its illegal distribution. People who are high are not committing violence. ... Binge drinking accounted for about half of the more than 80,000 alcohol-related deaths in the United States in 2010, according to a 2012 report by the Centers for Disease Control and Prevention. The economic costs associated with excessive alcohol consumption in the United States were estimated to be about $225 billion dollars. ... The number of deaths attributed to marijuana use is pretty much zero." The New York Times.

JONATHAN BERNSTEIN: Voter registration is now automatic in Oregon. "Oregon represents a small, first step toward joining the world's most successful democracies. Voter registration in most of the advanced world is automatic. In the U.S., it's not only cumbersome, it varies by state. In most states, the registration deadline arrives well before the heat of the campaign, meaning that new voters (or those who have moved and need to re-register) must attend to the responsibility long before most people are paying attention to the election. As a result, registration is perhaps the largest obstacle to voting in the U.S. -- and a major reason that Americans are less inclined to vote than citizens in most similar democracies." Bloomberg View.

3. In case you missed it 

Prime Minister Benjamin Netanyahu's party wins decisively in Israel's elections. "Israelis expected a possibly long and drawn-out struggle between Netanyahu and his challenger, with both men and their parties claiming the mantle of leadership and trying to form governing coalitions. ... In addition to his Likud party, Netanyahu has begun discussions to bring the following into his coalition: Naftali Bennett and his Jewish Home party, composed of religious nationalists and the pro-settler camp; the populist and former Likudnik Moshe Kahlon; Avigdor Liberman, head of a small secular nationalist party whose base is dominated by Russian-speaking immigrants from the former Soviet Union; and the leaders of two parties that represent Israel’s ultra-Orthodox Jewish population. The election was closely watched in Washington, where relations are strained between Netanyahu and the White House after Netanyahu gave a speech to Congress two weeks ago opposing the Obama administration’s possible deal with Iran to rein in Tehran’s nuclear program." William Booth in The Washington Post.

The House GOP budget doesn't account for hundreds of billions of dollars that would be lost from repealing Obamacare. "The health law, despite its huge federal spending on insurance expansion, was also designed to reduce the deficit. The law imposed substantial cuts to the Medicare program and raised a series of new taxes, including ones on wages, health insurance and medical devices. ... The budget resolution directs Congress to repeal all the Obamacare taxes, but then estimates no accompanying reductions in federal revenue. That silence on the cost of those policy changes suggests that Congress would make up the difference with other revenue changes. Finding a way to preserve the money that would have been raised by those taxes would mean major changes to the federal tax code." Margot Sanger-Katz for The New York Times.

Meanwhile, the proposed Medicaid cuts are going to be unpopular. "Republicans are making a big push, as a party, to court middle-class voters. They're more loudly lamenting stagnating incomes and, in some cases, widening inequality. In some corners, they're pushing for more targeted policies to appeal to the broad swath of Americans who don't see the economy working for them, anymore. It's hard to see much evidence of that effort, though, in the House GOP spending plan. The plan, released Tuesday, leads with a broad principle that middle-class voters -- and all voters, really -- endorse: It reduces the deficit and, in 10 years' time, balances the budget. But the road to balance is paved with budget cuts that middle-income voters, polls show, don't much care for." Jim Tankersley and Scott Clement in The Washington Post.

The speaker of the House wants to end the "doc fix." Will his caucus go along? "John Boehner is seeking to jump-start his legislative agenda with a bipartisan gamble: a $200 billion Medicare deal that’s already dividing conservatives in his rowdy conference. ... Without action by March 31, doctors will see a 21 percent cut in their payments under Medicare, as part of automatic cuts driven by the sustainable growth rate formula. The last 17 times Congress faced a similar deadline, it simply punted by putting off the cuts. Now, leaders finally appear close to a long-term solution. The package would be paid for through a combination of means testing -- that is, making wealthier seniors pay more for Medicare -- and reforms to the costly private supplemental health insurance plan known as Medigap." Scott Wong and Peter Sullivan in The Hill.

Republicans have taken an incremental approach on financial reform, and it's worked. "When it comes to Obamacare, Republicans want a "root and branch" repeal. But when it comes to the Obama-backed Dodd-Frank Wall Street Reform law, they have an ax in hand, but they seem content to leave large parts of the plant behind. ... While the GOP's thousand-cuts approach to Dodd-Frank doesn't fit as tidily in a candidate's stump speech, the tactic has significantly bit into the 2010 measure. December's "CRomnibus" legislation included a provision that repealed part of the law that said bank holding companies were allowed to conduct only certain activities with derivatives in their nonbank subsidiaries. In January, when Congress passed the reauthorization of the Terrorism Risk Insurance Act, it included a provision exempting allowing nonfinancial end users of derivatives from restrictions that banks follow. Now, in the latest budget, Republicans are hoping to make further cuts." Eric Garcia in National Journal.

Democratic activists are getting impatient with Hillary Rodham Clinton. "As Clinton slow-walks her way into the 2016 presidential race, many of the Democratic front-runner’s most active supporters are concerned that she’s not yet doing the kind of face-to-face politicking that is well underway by a cast of a dozen or more likely Republican candidates. Clinton’s absence has stoked unease among her impatient supporters, who also worry about her reputation as someone uncomfortable with the nitty-gritty of retail campaigning." Philip Rucker in The Washington Post.


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