THURSDAY, JULY 22, 2010
KLMNO WASHINGTON BUSINESS
Fed ready to step in if economy relapses Bernanke outlines
potential actions, says they’re not on table yet
by Neil Irwin The Federal Reserve would
take action if necessary to keep the economic recovery on track, Chairman Ben S. Bernanke said Wednesday, even as he asserted that he expects the expansion to continue. It was the first time the Fed chairman has publicly opened the door to further policy steps to bol- ster the recovery, part of a dual message delivered in his high- profile, semiannual testimony on monetary policy: one of cautious optimism about continued growth and recognition that the risk of a faltering recovery has ris- en in recent months. Bernanke and his Fed col- leagues “recognize that the eco- nomic outlook remains unusually uncertain,” he told the Senate banking committee. “We remain prepared to take further policy actions as needed to foster a re- turn to full utilization of our na- tion’s productive potential in a context of price stability.” Financial markets tumbled on Bernanke’s testimony. Specula- tion had built among investors that the Fed chairman might sig- nal that some policy action was imminent or even announce it at the testimony. The Standard & Poor’s 500-stock index ended Wednesday down 1.3 percent.
LOCAL DIGEST STOCKS
Sallie Mae shares fall as new loans decline
Instead, Bernanke made it clear that new action was not on the table.
“If the recovery seems to be fal-
tering, then we would at least need to review our options, and we have not fully done that re- view,” he said, responding to a question. Bernanke outlined the further
actions he had in mind: cutting the interest rate paid on bank re- serves, strengthening the Fed’s promise to keep short-term inter- est rates low for the foreseeable future, or buying enough mort- gage securities to replace those that are paid off. If the economy appeared at serious risk of return- ing to recession, the Fed would consider large-scale purchases of Treasury bonds or mortgage-re- lated securities. “We have not come to the point where we can tell you precisely what the leading options are,” Bernanke said. “Clearly, each of these options has got drawbacks, potential costs. So we are going to continue to monitor the economy closely and continue to evaluate the alternatives that we have.” The banking committee’s two senior members had differing tones as they discussed the pol- icies they would like to see out of the Fed. “It looks like our economy is in need of additional help,” said Sen. Christopher J. Dodd (D-Conn.), chairman of the committee. “One of the issues I would like to ex- plore with you today is whether the Fed can do more to help ex- pand output and employment.” Sen. Richard Shelby (R-Ala.),
ALEX BRANDON/ASSOCIATED PRESS
Federal Reserve Chairman Ben S. Bernanke prepares to testify before the Senate banking committee. He characterized the job mar-
the panel’s ranking Republican, who has expressed greater con- cern about inflation than growth in the past, said that the shift toward considering options such as new asset purchases “is espe- cially concerning because the purchase of even more long-term assets may channel credit to fa- vored segments of the markets at the expense of others.” While Bernanke said he expec- ted continued growth, his com- ments on the economy were sub- dued. The expansion that began last year “is proceeding at a mod- erate pace,” he said, acknowledg- ing that both the end of govern- ment fiscal stimulus and of busi- nesses’ restocking of inventories “will likely be providing less im- petus to the recovery than they have in recent quarters.”
ket as showing continued weak- ness, which could weigh on the ability of households to drive the recovery in the years ahead. In particular, the 100,000 or so pri- vate jobs being created each month so far in 2010 is “a pace in- sufficient to reduce the unem- ployment rate materially,” he said. And Bernanke acknowledged the impact of millions of Amer- icans being unemployed for six months or longer. “Long-term un- employment not only imposes ex- ceptional near-term hardships on workers and their families, it also erodes skills and may have long- lasting effects on workers’ em- ployment and earnings pros- pects,” he said. He was more optimistic about the corporate sector, noting that
investment in equipment and software “appears to have in- creased rapidly” in the first half of the year and that exports are ris- ing. Inflation appears to be a more distant concern; he noted that Fed leaders forecast that con- sumer prices will rise only about 1 percent this year, below the 2 per- cent or so targeted by Fed leaders. Bernanke sought to avoid en- dorsing specific tax or spending policies. Responding to questions on fiscal policy in which senators tried to get him to endorse their preferred policies, he argued that the long-term budget deficit is unsustainable and that any effort to boost the economy in the short run should be paired with longer- term deficit reduction.
irwinn@washpost.com
Emergency jobless benefits approved in crucial Senate vote by Lori Montgomery The Senate voted 59 to 39
Wednesday to restore emergency jobless benefits to millions of people who have been out of work for more than six months. House leaders said they will
ratify the measure Thursday and send it on to the White House, where President Obama plans to immediately sign it. The bill would authorize states to provide retroactive support to an estimated 2.5million people
whose unemployment checks have been cut off since federal benefits expired June 2. It would also make available up to 99 weeks of income support through the end of November to millions more who have exhausted state benefits, which typically last for 26 weeks. Advocates for the un- employed say it could be several weeks in some states before the checks are in the mail. The vote comes after a months- long battle over whether to pay for the $34 billion measure or add that sum to the nation’s
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Daily Stock Market Performance Index
Dow Jones Industrial Average
11,300 10,800 10,300 9800 9300 8800
Nasdaq Composite Index
2650 2400 2150 1900
S&P 500 Index 1250
1150 1050 950
1069.59 –1.3 –4.1 2187.33 –1.6 –3.6 10,120.53
Close %Chg –1.1
Daily
%Chg –2.9
YTD
mounting national debt. Both parties have agreed in the past not to pay for emergency jobless benefits during periods of high unemployment, in part because cutting spending or raising taxes to cover the cost could depress economic activity.
But the recent recession, cou- pled with public spending to re- vive the economy, has pushed government debt loads here and abroad into dangerous territory, sparking a crisis in Europe and heightening public anxiety in the United States.
Republicans have been playing to those fears in hopes of regain- ing control of Congress in this fall’s midterm elections. With un- employment at 9.5 percent, they agreed that jobless benefits should be extended but said the cost should be covered with un- expended funds from last year’s economic stimulus package. Democrats have accused the GOP of playing politics with the lives of millions of unemployed workers, noting that Republicans want to extend tax cuts for high- earners that would add nearly 20
THE MARKETS
Industry Group Health Care Technology Machinery
Electrical Equipment
Electrnc Eqp, Instr, Comp Metals & Mining
Paper & Forest Products Consumer Finance
Health Care Eqp & Suppl Building Products
Thrifts &Mtge Finance
S&P 500 Industry Group Snapshot Daily
%Chg 2.59 0.79 0.52 0.21 0.10
–2.91 –3.20 –3.35 –3.86 –4.19
International Stock Markets Daily
Americas
Brazil (Bovespa) Canada (S&P/TSX Comp.) Mexico (Bolsa) Europe
Eurozone (DJ Stoxx 600) France (CAC 40) Germany (DAX) U.K. (FTSE 100)
Asia Pacific A S O N D J
Company 3M
Alcoa
AmExp AT&T BoA
Boeing
Caterpillar Chevron
Exxon Mobil GE
Dow Jones 30 Industrials Daily
Close 82.30
10.59 41.15 24.92 13.36 63.18 66.87 72.17
Cisco Systems 22.56 Coca-Cola DuPont
Home Depot 27.47 HP
54.08 36.56 58.17 14.84
45.48
%Chg %Chg 0.1
–2.4 –34.3 –2.2 0.5
–3.0 –1.1 0.7
–1.3 –2.1 1.6
–0.7 –1.3 –0.7 –1.6 –2.4
Other Measures Index
YTD –0.4 1.6
–11.1 –11.3 16.7 17.3 –6.3 –5.8 –5.1 8.6
–14.7 –1.9 –5.0 –11.7
Close
DJ Total Stock Market Index 11,120.50 Russell 2000
612.64
Post-Bloomberg DC Area Index 179.32 CBOE Volatility (VIX)
25.64 F M A M J
Company IBM
Intel J&J
JPMorgCh Kraft Foods McDonald's Merck
Microsoft P&G Co Pfizer
Travelers Wal-Mart Walt Disney
Close 125.27
21.26 57.12 38.42 28.84 70.11 35.19 25.12 61.11 14.50 49.87
United Tech 67.03 Verizon
26.52 50.35 32.81
Daily
–1.8 –2.5 –3.1 –1.3 –1.1 –1.3 –1.4 –1.5
J
%Chg %Chg –1.0
YTD –4.3 –11.3
4.2
–7.8 6.1
12.3 –3.7
–17.6 0.8
–0.3 –20.3 –1.0 –0.8
0.0
–0.6 –14.3 –1.0 –1.8
1.7
Interest Rates Consumer Rates
Daily%Chg YTD%Chg –1.3 –1.9 –1.5 7.1
–3.3 –2.0 –4.3 18.3
Money market funds 6-Month CDs 1-Year CDs 5-Year CDs New car loan Home-equity loan
0.75 0.81 1.14 2.48 6.17 7.37
0.51% 0.25% 3.25%
Bank Prime Federal Funds LIBOR 3-Month
3.19% 4.09% 4.63%
30-Year fixed mortgage 15-Year fixed mortgage 1-Year ARM
–3.4 –5.8
Australia (ASX 200) China (CSI 300) Hong Kong (Hang Seng) Japan (Nikkei)
4412.70 2747.34
20,487.23 9278.83
Cross Currency Rates EU €
US $
US $ per EU € per
Japan ¥ per Britain £ per Brazil R$ per
Canada $ per Mexico $ per
0.7835 87.0500 111.1100
0.6592 0.8414 0.0076 1.7799 1.0480
12.8720 16.4295 0.1480
2.2718 0.0205 1.3376 0.0120
0.2 0.2 1.1
–0.2 Japan ¥
1.2763 0.0115 0.0090
Britain £ 1.5168
Brazil R$ Canada $ Mexico $ 0.5617
0.9542 0.0777
1.1885 0.4402 0.7476 0.0609 132.0400 48.9113 83.0600 6.7630 0.3704
2.7000 1.5896 0.5888 19.5247
0.6291 0.0512 1.6985 0.1383 0.0814
7.2320 12.2825 Close
64,476.84 11,513.33 32,108.99
249.24 3493.92 5990.38 5214.64
%Chg 0.0
–1.0 0.3
1.2 0.7 0.4 1.5
YTD%Chg –25%
–5.0% 0 +5.0%
Commodities Futures
Copper Corn
Crude Oil Gold
Natural Gas
$3.0870 $3.7975 $76.56
$1191.80 $4.51
Close %Chg +3.0 +1.5 –1.3 0.0
Daily
Orange Juice Silver
–1.7
Value of $1000 invested for the past: Daily
0% +25%
Exchange-Traded (Ticker) %Chg Coffee (COFF.L) Copper (COPA.L) Corn (CORN.L) Cotton (COTN.L) Crude Oil (CRUD.L) Gasoline (UGAS.L) Gold (BULL.L)
–1.7 2.4 0.9 0.7
Natural Gas (NGAS.L) Silver (SLVR.L)
Gainers Cytec Industries
United Rentals Mannatech Inc Spherion Textron
EthanAllenInteriors RC2 Corp
Christopher & Banks Morgan Stanley Penford Corp Eaton Corp OM Group Viasat
O'Charleys Nautilus Inc Liz Claiborne
Astec Industries
Waste Connections Timken
–0.9 –0.4 –0.1 0.6 0.3
Gainers and Losers from the S&P 1500 Index Daily
Close %Chg $49.86 16.5
$11.85 12.1 $2.63 11.4 $6.65 9.0 $19.65 8.7 $14.97 8.2 $16.32 8.2 $6.93 7.4 $26.80 6.3 $6.12
6.3
$73.14 5.9 $25.70 5.5 $35.08 5.2 $6.12
4.6 Heidrick&Struggles $20.21
10-year note Yield:
5-year note Yield:
2.88 1.64
4:30 p.m. New York time.
$1.67 4.4 $4.56 4.3 $30.48 4.0 $37.28 3.9 $29.36 3.7 3.6
Losers
Comtech Telecom Pinnacle Financial Hancock Holding SLM Corp
Fulton Financial Lufkin Industries Stryker Corp Yahoo!
Whitney Holding Gentiva Health
Close %Chg $21.30 –31.9
Daily
$9.37 –23.3 $28.01 –15.8 $10.34 –11.3 $8.78 –10.8 $38.43 –8.9 $46.75 –8.9 $13.91 –8.5 $7.41 –7.8 $19.96 –7.6
WilmingtonTrustCorp $10.39 –7.3 Deltic Timber
UnitedCommunityBank $3.19 –7.3 Tenet Healthcare Quest Diagnostics IPC The Hospitalist Marshall & Ilsley Tuesday Morning AMB Property
$40.45 –7.3 $4.30 –6.5
$46.70 –6.5 $22.91 –6.5 $6.64 –6.5 $4.20 –6.5 $22.50 –6.4
Cantel Medical Corp $15.20 –6.4 Treasury Performance Over Past Three Months
2-year note Yield:
6-month bill Yield:
0.56 0.19
Note: Bank prime is from 10 major banks. Federal Funds rate is the market rate, which can vary from the federal target rate. LIBOR is the London Interbank Offered Rate. Consumer rates are from Bankrate. All figures as of
Soybeans Sugar Wheat
$800
times as much to the nation’s debt over the next decade. In the end, two Republicans — Sens. Olympia J. Snowe and Su- san Collins, both of Maine — vot- ed with a virtually united Demo- cratic caucus to extend jobless benefits without paying for them. One Democrat, Sen. Ben Nelson of Nebraska, voted no. The measure now goes to the
House, which has already ap- proved an extension of jobless benefits but must vote again for procedural reasons.
montgomeryl@washpost.com
Shares of Sallie Mae, the Res- ton student lender, saw the steep- est one-day decline since January after the company said that loan originations decreased and that uncollectible debts rose for the second quarter. Sallie fell 11 per- cent, to $10.34. The company, formally known as SLM, extended $219 million in private loans in the second quar- ter, compared with $387 million during the year-ago period. Pri- vate education loan charge-offs rose to $336 million from $284 million. Applications for new loans are weak as U.S. households reduce borrowing and turn to cheap edu- cation loans from the govern- ment, chief executive Albert Lord said.
— Bloomberg News GOVERNANCE
American Express board drafts Leonsis
American Express said it named Ted Leonsis, owner of Washington’s NBA and NHL teams, to its board of directors. Leonsis will chair the board’s
new innovation and technology committee, the company said. He has advised American Express on digital and online payments since the beginning of the year. Leonsis, a former AOL exec- utive, also owns the Verizon Cen- ter and the WNBA’s Washington Mystics through his company, Monumental Sports and Enter- tainment.
American Express also an- nounced that a former Sprint Nextel executive, Daniel H. Schulman, would lead a new business group focused on growth outside credit cards and travel.
— Associated Press
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Data and graphics by
$1.4340 $17.80
Close %Chg +1.1
Daily
$10.1525 $0.1747 $5.8825
day $1000
+0.6 +0.3 +1.1 +1.9
month $1200
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