USA Spending Falls ?

U.S. Consumer Spending Falls for Sixth Straight Month


By T. Homan

(Bloomberg) -- Consumer spending in the U.S. fell in December for a record sixth consecutive month, capping the worst year since 1961, a slump that is likely to persist as companies slash payrolls.

The 1 percent drop in purchases was larger than forecast and followed a 0.8 percent decrease in November, the Commerce Department said today in Washington. The Federal Reserve’s preferred measure of inflation was little changed for a third month.

The loss of almost 2.6 million jobs last year and record declines in home values have shaken confidence, indicating sales and prices are likely to keep retreating. President Barack Obama is pushing Congress to approve a stimulus package that includes tax cuts intended to boost consumer spending.

“Consumers continue to be pulling back, and the pace of that does not appear to be easing,” said Julia Coronado, a senior economist at Barclays Capital Inc. in New York, which accurately forecast the drop in spending. “Consumers are not going to be spending anytime soon.”

Economists forecast spending would fall 0.9 percent, according to the median of 61 estimates in a Bloomberg News survey. Projections ranged from declines of 0.6 percent to 1.7 percent.

Incomes Drop

Today’s report also showed incomes fell 0.2 percent in December, the third straight decline, after a 0.4 percent decrease the prior month. It was the longest stretch of decreases since the three months ended in January 1954.

The figures raise more concerns about deflation as prices cool. The price gauge tied to spending patterns increased 0.6 percent from December 2007. The Fed’s preferred gauge of prices, which excludes food and fuel, was up 1.7 percent from December 2007, the smallest gain in almost five years.

Consumer spending rose 3.6 percent for all of 2008, the smallest gain since 1961.

Companies are slashing prices to attract shoppers during the recession, a move that is dragging down profits. EBay Inc., the world’s biggest Internet auctioneer, reported its first quarterly decline on Jan. 22. Revenue fell 6.6 percent to $2.04 billion as sellers cut prices and the company boosted promotions to lure more holiday customers.

The decrease in spending pushed the savings rate up to 3.6 percent from 2.8 percent in November. A positive rate suggests consumers are earning more than they are spending.

Disposable Income

Disposable income, or the money left over after taxes, increased 0.3 percent after adjusting for inflation.

Today’s report showed inflation-adjusted total spending dropped 0.5 percent following a 0.3 percent gain in November. Price-adjusted purchases of durable goods, such as autos, furniture, and other long-lasting items, decreased 0.8 percent. Purchases of non-durable goods decreased 1.8 percent, partly reflecting the slump in gasoline, and spending on services, which account for almost 60 percent of all outlays, climbed 0.1 percent.

Consumer spending dropped at a 3.5 percent annual pace in the fourth quarter after decreasing at a 3.8 percent pace in the previous three months, the Commerce Department said Jan. 30. It was the first time since records began in 1947 that declines in spending exceeded 3 percent in consecutive quarters. The economy shrank 3.8 percent, the most since 1982

Big Three failure may be catastrophe ?? or Worse ??

Big Three failure may be catastrophe
Blow to economy could be costlier than bailout, automaker CEOs say
By S. CARTY and B HAGENBAUGH USA Today

When the heads of General Motors, Chrysler and Ford went to Capitol Hill last week, they tried to persuade lawmakers that if they go under, an already fragile U.S. economy will be dealt a blow far costlier than the $25 billion in aid the companies are seeking.


As lawmakers wrestled, then decided to head home and not quickly approve a bailout, foremost in their thinking was a question the Big Three CEOs apparently failed to answer: If we let these guys fail, how bad will it really be for the economy?

Critics say Detroit created its own problems with poor planning and inferior products, and cite a healthier foreign auto industry operating mostly in southern states that isn't seeking a taxpayer bailout. But even Toyota said over the weekend it fears the impact on the parts suppliers it uses if the U.S. auto industry collapses.

Moody's Economy.com chief economist Mark Zandi estimates that 2.6 million jobs -- about 1.9 percent of the U.S. work force -- would be lost if GM, Chrysler and Ford were to go under.

That includes more than 255,000 people directly tied to the three companies and another 2.3 million whose jobs are indirectly dependent -- everything from people who work in the steel, glass, fabric, tire and electronic industries to the barista who makes $4 cappuccinos for the ad executive who'll be out of work when his auto industry business ceases to exist.

Zandi argues the economy is too weak to absorb that fallout.

"This could be the thing to push us over," he says. "The ripple effect is like throwing a big boulder into the economic pond."

The auto industry is woven into the grass roots of the U.S. economy, through its dealer networks, the advertising it buys in newspapers and local TV and radio stations, the health care it buys for its workers and their families and the retirees it supports.

The domestic auto industry supports nearly 800,000 retirees and spouses with pensions and, until recently, health care for everyone. Now that's being cut back for white-collar retirees, but if the automakers file for bankruptcy, they could shed their pension costs and force the government to pick up the tab.

Advocates of a bailout argue that if one of the Big Three fails, it could take down the entire supply chain that cuts a wide swath from Wisconsin to Ontario, Canada, and south from Florida to Texas. As Toyota officials pointed out, the effect would be on all companies making vehicles in the USA.

The impact of the industry woes already is being felt beyond Detroit. Saturday, a Chrysler-Dodge dealer in North Brattleboro, Vt., closed after 20 years, citing slumping sales. It became one of the projected 700 dealers nationwide expected to have closed by the end of this year.

Advertising agencies and media from New York to local TV stations in New Mexico are seeing revenue dry up because the automakers and their dealers are spending less money hawking cars. Suppliers in North Carolina, host to roughly one-quarter of the parts-manufacturing base for the auto industry, are declaring bankruptcy at an alarming rate.

'Very difficult judgments'
The ripple effect of an industry collapse could further trim consumer confidence and unemployment, said Lyle Gramley, a former Federal Reserve Board governor who is senior economic adviser at the Stanford Group.

"As a general principle, I don't think that bailing out individual companies is a good idea," said Gramley. However, "You have to contemplate the possibility of 1 million employees losing their jobs and the entire industry at risk" if an automaker were to fail.

Comerica Bank chief economist Dana Johnson said there are some "very difficult judgments" for lawmakers to make about the potential impact an auto industry failure would have on the economy. If one or more of the companies were to go under, the U.S. government would be on the hook for unemployment benefits, retraining and pension obligations while receiving less in taxes, he said.

"There are roughly two parts producers for every employee at the car companies, and there are a lot of vendors -- steel producers, paint producers, glass producers, business services, accounting, advertising," he said. "There's no question that it is an important industry, that there are linkages to employment elsewhere."

Zandi and other economists argue there is a better way to aid the auto sector than to provide bailout loans.

There is growing support for allowing the companies go into bankruptcy, using government funds to guarantee financing from banks. That would allow the automakers to restructure, including tearing up old labor contracts and reducing their sizes. Government support could give consumers confidence that the car companies would exist after bankruptcy, soothing worries about car warranties and availability of replacement parts.

"Like the airlines, I think they should go into Chapter 11 bankruptcy and start with a clean slate," said Michael Cusumano, a professor at MIT's Sloan School of Management who has written two books on the auto industry. He said reorganization should include replacing management.

But then, there are two auto industries in the U.S. The first, based in and around Detroit, is GM, Ford and Chrysler. The second is sprinkled around the Southeast and includes foreign automakers Toyota, Honda, Subaru, Nissan, BMW and Mercedes-Benz.

Parts suppliers are spread out between them "like pearls on a necklace" along the highways connecting the South and the Midwest, said Thomas Klier, senior economist with the Federal Reserve Bank of Chicago.

Suppliers in the past tended to focus on one customer, but now almost all have overlapping customer bases. That's why Toyota is worried about the Big Three. About 75 percent of Toyota's suppliers here are North American companies who also make parts for the Detroit companies.

"We are concerned with the industry in general, but we're mostly concerned about our suppliers," Toyota spokesman Mike Goss said. "If the worst happens in Detroit and these companies suffer, we're worried about their longevity as well."

Georgia & Russia Snarl , Can u make money ?? ( Gold & Oil )

WHAT A SHAME! IT WOULD HAVE BEEN A DREAM TICKET: Edwards and Spitzer. They'd have been a cinch in 2012, if Obama doesn't make it this year, to walk away with the votes of the all-important hot-hormones group, 18-to-29-year-old males. (You know, the coveted cohort that TV networks salivate over as viewers, and not the least of reasons television is not fit for human consumption.)

Just think about what a terrific ad campaign that well-known agency, Smirk and Smirk, would have created showing Edwards and Spitzer winking atop the catchy slogan spelled out in big bold letters: "Vamoose, Viagra! The country needs a real man as president!"

But then Edwards, nary a hair nor a dimple out of place, does his mea culpa bit on the tube and that's a sure turnoff for the testosterone voter, who likes his hamburger raw and his candidate unrepentant. Hang in there, guys, and don't be disconsolate: If history is any guide, you can bet your last dollar we'll never run out of straying Democrats.

Still, we can understand the widespread disappointment. It'd be a wonderfully refreshing change if, when a candidate talked about foreign affairs and conquests, he wasn't boring us to tears with all that guff about realpolitik or boasting about sending in the marines, but, instead, chortling about the liaisons he struck up at the latest boondoggle summit and the sweet nothings he whispered into the ear of one comely lass or another. À la the current president of France.

Alas, the way the world turns these days, there's scant time or inclination for a president to display what Dubya's daddy called a kinder, gentler mien, much less regale the public with accounts of his romantic dalliances. Last week furnished a telling example of the omnipresent pressures the nation's chief executive is prey to.

No sooner was Mr. Bush settling into his privileged perch at the Olympics, poised to enjoy a rare day of fun and games, with his old pal Vladimir Putin nearby, than came the news that the Russians were beating up on their feisty little neighbor, Georgia.

Had the president, as he is wont to do, been able to peer into Mr. Putin's eyes, he might have spotted the venomous black hole where the Putin soul was supposed to be and would have been able to alert the world that serious trouble was brewing. But the wily Russian had slipped on his shades, thus denying Mr. Bush the chance to perform one of his famous soul-searches and perhaps forestall Moscow's power play.

One could argue that Georgia is the latest casualty of Iraq. For if we weren't so inextricably tied down in Iraq or, at least, if our involvement hadn't been so poorly planned and ineptly pursued, it's more than a little doubtful that Russia would have been tempted to flaunt its revived fortunes by unveiling its iron fist.

Maybe it was the competition for traders' attention from the Olympics or that Wall Street merely shrugged it off as a not a really serious business, but the Russian strike and the growls from Washington it triggered caused nary a ripple in markets, whether financial or commodities. Or, it could be that all the nervous types took the week off, giving their frazzled nerves a badly needed vacation.

Stocks ambled on in their by-now familiar unpersuasive fashion, desperately seeking any shred of an excuse to go higher. Oil had the briefest respite from its persistent vertigo, on hopes that the Georgia fracas would interrupt the flow of crude and natural gas, but quickly became discouraged and resumed its skid, hitting a fresh low for the past three months.

Even gold, which feeds on the world's misery and ordinarily would get a nice lift from a confrontation between global heavyweights, extended its swoon. That's the kind of thing that really tests a man's faith: If you can't trust gold to react with quivers (and quantum leaps) when the U.S. and Russia snarl at each, what can you believe in?

Seems like a case of mass narcosis is afflicting investors just about universally. We thought we'd try that one out on some supposedly knowledgeable shrinks, only to discover that in August they all flock to Cape Cod, and studiously leave their cellphones behind.

JUST ABOUT THE LUCKIEST PEOPLE we've ever come across happen to toil in Wall Street and Washington. They vary across a wide spectrum in how much money they make and in the usual distinctions of height, weight, age, intellect and amiability. What they share are three things which are closely related. The first is that, in some significant way, either directly or as mouthpieces, their professional terrain is economics.

The other two things they have in common are: They never need bestir themselves, lay down the book or turn off the television set or tear away from their computer and go out to buy anything, no matter how trivial or important; someone else -- a wife, a husband, say, or an assistant, or perhaps an indentured slave -- performs that task. And, last but not least, they're all of a single mind on inflation -- namely, for all intent and purpose, there isn't any.

Not content with letting the data tell its story (lest, we can only assume, it doesn't comport with their perception), they've devised an alternative to the standard price indexes called "core" inflation, which conforms to what they deem a proper (inevitably sharply lower) measure of inflation. Core is nicely constructed to exclude energy and food, which account for nearly a quarter of consumer expenditures, and occasionally other categories where prices show an untoward tendency to rise.

Last month, reports the Labor Department, consumer prices shot up a scorching 0.8%, twice the consensus guess, and the sharpest rise in 17 years. The core cabal were quick to take comfort in the fact that core inflation was up a much more demur 0.3%, and pooh-poohed the big jump in headline inflation (that's what they snootily dub the consumer-price index, to give it a tabloid veneer, which makes it seem inherently unreliable). Their feverish fetish for the core number also permitted them to blithely ignore that consumer prices in the past 12 months scored the biggest rise since January 1991.

The truth is that inflation, if not rampant, is ubiquitous and gathering strength. It may not be up to the wild inflation we experienced in the 1970s, but it's plenty mean enough and getting worse. It's now firmly embedded in the economy, and it's not going to vanish magically because crude is down to "only" $113 a barrel, or the dollar has inched its way off the bottom, or even if one of the core faithful waves his wand and says Abracadabra!

Getting a true read on consumer prices isn't just an academic exercise. John Williams, proprietor of Shadow Government Statistics, has built rather a brilliant career out of analyzing the official data and showing in exquisite detail where they depart from reality. He points out, moreover, that an awful lot is dependent on the CPI, not least Social Security and other forms of compensation.

On that score, he reckons that changes made over the years aimed at understating inflation have reduced current Social Security payments to half of what they otherwise would have been. In other words, today's Social Security checks would be double what they are, were it not for that serendipitous tinkering, especially during the Clinton years. Ah, well, the geezers never knew what hit them.

Or, as John puts it ever so sweetly, "The CPI worked reasonably well into the early 1980s. In recent decades, however, the reporting system increasingly succumbed to pressures from miscreant politicians, who were intent upon stealing income from Social Security recipients, without ever taking the issue of reduced entitlement payments before the public or Congress."

After World War II, the consumer-price index was included in Detroit's contracts with the auto workers and then "found its way not only into other union agreements, but also into most commercial contracts that required consideration of cost/price changes or inflation." Obviously, then, its reach extends into any number of nooks and corners in the economy.

The changes in the CPI, not a few of them made with the malicious intent of hiding the true rate of inflation, have, John figures, understated inflation by roughly seven percentage points. What this means simply is that the 5.6% rise over the past 12 months officially reported was actually, by his meticulous figuring, a whopping 13.4%. That makes complacency among the core cabal willfully silly.

Or as John neatly puts it, "The Pollyannas on Wall Street like to play games with the CPI...It is common to hear financial pundits cite annual 'core' inflation as a way of showing how contained inflation is. Such comments are moronic and such commentators are due the appropriate respect."

As you can readily tell, we're kinder than John, so, as intimated early on in this screed, we ascribe the core gang's benign view toward inflation not necessarily to a deficient IQ but to their failure to buy even so much as a toothpick on their own.

Consumer Spending slowed down ??

Consumer spending in the US slowed in June, official figures have shown, as Americans were hit by the biggest price rises since 1981.
Inflation-adjusted spending fell 0.2% in June, the Commerce Department said.
Its inflation gauge rose 0.8% in the month, which was the biggest increase since February 1981's reading of 1.0%.
On Tuesday the Federal Reserve will announce its latest interest rates move with economists saying that inflation will make the decision tough.
The Fed is expected to keep interest rates unchanged, but there will be much interest in whether its statement expresses concerns about rising prices - which have reduced the impact of the government's $168bn (£85bn) stimulus programme.
Factory orders rise
In other economic news, the new orders received by US factories grew by 1.7% in June, which was much higher than had been expected.
One of the biggest contributors was heavy demand for military equipment, which rose by 16.9%.
There was also a 5.2% rise in orders for primary goods such as steel.
The cash value of orders for refined petroleum products were also up, reflecting their increased prices.

Tough Economic issues are upon us !!

By Mark Felsenthal

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke told a House of Representatives panel on Wednesday the U.S. economy is going through a "rough time" and urged lawmakers to approve Treasury Department proposals to back up mortgage markets.

"I think the housing market is really the central element of this crisis," Bernanke told the House Financial Services Committee. "And anything we can do to strengthen the housing market, to strengthen mortgage finance, would be beneficial."

On the second day of two days of congressional testimony, the Fed chairman painted a gloomier economic picture than in recent weeks, suggesting the U.S. central bank is unlikely to raise benchmark rates from the current 2 percent at its next meeting on August 5.

Underscoring the recent economic deterioration, minutes of the Fed's last meeting on June 24-25, released on Wednesday, showed officials thought at the time they might be able to begin raising benchmark interest rates from 2 percent as soon as August.

PUBLIC PAIN, PRIVATE GAIN

For the second day in a row, Bernanke sought to convince sometimes skeptical members of Congress to send a strong signal to financial markets that the U.S. government stands behind embattled mortgage finance companies Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) by approving a backstop package proposed on Sunday.

Treasury Secretary Henry Paulson also returned to Capitol Hill in a bid to win backing for his plan to extend unlimited credit and the possibility of equity purchases to the companies.

The mortgage enterprises' share prices slid abruptly last week amid worry they may lack sufficient capital to weather crumbling housing markets. Policy-makers consider them vital to any recovery of the beleaguered housing market, and Paulson's plan had backing from the Fed, the White House, and congressional leaders.

The Fed chairman said the two companies, with small exceptions, are now the only companies securitizing mortgages.

"I would advise prompt action on housing issues, including Fannie and Freddie," he said.

But Rep. Spencer Bachus, the highest ranking Republican on the House Financial Services Committee, told Bernanke that taxpayers should not be on the hook for losses incurred by publicly traded companies.

Bachus said he was concerned about an approach "where investors reap market gains and taxpayers are stuck with the losses."

His concerns echoed those expressed by several Senators on Tuesday, raising questions about how quickly the administration can push its package of confidence-boosting measures through Congress.

Shares of the two companies jumped on Wednesday after big mortgage lender Wells Fargo reported stronger-than-expected earnings, countering a trend of bleak news in the financial sectors.

TOUGH CONDITIONS

Speaking about economic conditions, Bernanke acknowledged that rising unemployment, tight credit and higher prices are pinching many people, even though the economy continues to grow.

"This is clearly a rough time," he said in response to questions from lawmakers. "Conditions are tough on average families," he added.

But the Fed is also increasingly worried that inflation may be flaring, as the minutes of the June meeting emphasized.

Bernanke is under pressure both within and outside the Fed for not fighting inflation more aggressively with higher benchmark interest rates.

Fresh evidence of inflationary pressures surfaced in a government report on Wednesday showing consumer prices rose in June by the biggest amount since September 2005 in the aftermath of Hurricane Katrina, as gasoline prices surged.

Even when volatile food and energy costs were stripped out, consumer prices rose more than expected.

Bernanke assured lawmakers that inflation is a concern for the central bank.

"Inflation is currently too high," Bernanke said. "And it's a top priority of the Federal Reserve to run a policy that is going to bring inflation to a acceptable level consistent with price stability," he said in response to questions from the committee.

Here We GO $ 150 a Barrel for Oil

Oil Rises to Record on Concern Iran Supplies May Be Disrupted
By R. Tuttle
Crude oil rose to a record above $143 a barrel, completing the biggest quarterly increase in nine years, on concern Israel may attack Iran over its nuclear program and disrupt supply from OPEC's second-largest producer.
Pressure on Iran to end uranium enrichment and the falling value of the U.S. dollar may drive prices to $170 a barrel, OPEC President Chakib Khelil said June 28. Kuwait, the fourth-largest OPEC producer, is taking precautionary steps to export oil if Iran closes the Strait of Hormuz, Kuna news agency reported.
``We are going beyond rhetoric at this point,'' said William Adams, managing director of JKV Global in Chicago. ``Israel's intentions are pretty clear. That's going to keep prices pretty high.''
Crude oil for August delivery rose $1.96, or 1.4 percent, to $142.17 a barrel at 10:01 a.m. on the New York Mercantile Exchange after rising to a record $143.67. The price has doubled in the past year. Oil has risen 34.6 percent so far this quarter, the largest gain since the first quarter of 1999.
Foreign ministers from the Group of Eight nations last week suggested more talks to coax Iran into opening its nuclear program to inspectors, after speculation the Islamic Republic faces an imminent Israeli strike.
Goldman Sachs Group Inc., Wall Street's most profitable bank, said in a report that supply and demand, rather than speculators, are responsible for oil's rally.
`Excessive Speculation'
The U.S. House of Representatives last week approved a bill calling on the Commodity Futures Trading Commission to use its emergency powers to ``curb immediately the role of excessive speculation'' in any market it oversees where energy futures or swaps are traded.
Brent crude oil for August settlement rose $2.21, or 1.6 percent, to $142.52 a barrel on London's ICE Futures Europe exchange, after reaching a record $143.91.
Nigeria's rank among producers in the Organization of Petroleum Exporting Countries has slipped behind that of Angola amid violence by militants. Chevron Corp., Royal Dutch Shell Plc. and Eni SpA have all shuttered fields in Nigeria this month.
``Tensions ratchet up in Iran and troubles continue in Nigeria, drawing funds into the market,'' said Robert Montefusco, a broker at Sucden (U.K.) Ltd. in London. ``The weak dollar is also helping. The market does not want to break down just yet.''
The European Central Bank is expected to raise interest rates a quarter-percentage point to 4.25 percent, according to a survey of economists by Bloomberg News. The dollar has declined 8 percent this year against the euro.
Avoid the dollar ``at all costs,'' investor Jim Rogers said in Shanghai today. ``The best investments in 2008 are commodities and natural resources. Agricultural prices have much higher to go over the next decade. We have a shortage of everything including seeds.''
Rising Prices
Hedge fund managers and other large speculators almost doubled their bets on rising prices in the week ended June 24, according to U.S. Commodity Futures Trading commission data.
Net-long positions in New York oil contracts, the difference between contracts to buy and sell the commodity, rose to 24,217 contracts. Long positions climbed from a five-month low a week earlier while contracts to sell oil fell a second week to a two- month low.

Wil Bernanke cut rates or Add Rates Higher ??

Bernanke May Halt Rate Cuts, Shift Focus to Inflation By Steve Matthews

June 25 (Bloomberg) -- The Federal Reserve may signal today that inflation is starting to replace a recession and the credit crunch as the biggest risk facing the economy.
Chairman Ben S. Bernanke and his colleagues are laying the groundwork for a policy shift after oil prices doubled in the past year and inflation exceeded 4 percent. At the same time, they may be reluctant to go too far because the economy has yet to shake off the credit crunch and bank losses are deepening.
The Federal Open Market Committee will leave the benchmark interest rate at 2 percent today, ending the fastest series of reductions in two decades, according to all 102 economists surveyed by Bloomberg News.
``They are going to lean a bit more to inflation risks than growth risks, and may provide a hint they could hike rates down the road,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. ``They will signal their concern in a subtle way, not explicitly. They don't want to have a statement that would tie their hands.''
Today's meeting resumed at about 9 a.m. in Washington and a statement is scheduled for about 2:15 p.m. Officials may say their past actions are helping sustain growth, while price increases might take time to moderate, Fed watchers said.
Fed governors and district-bank presidents are bringing new quarterly forecasts to the meeting, which began yesterday in Washington. As recently as April, ``many'' of them foresaw an economic contraction in the first half. That's now unlikely after more than $70 billion of tax rebates helped keep Americans spending and record exports eased the slump in manufacturing.
Bernanke's Assessment
Bernanke in a June 9 speech said that risks of a ``substantial downturn'' in the economy had diminished. He also flagged concerns about consumer prices, and warned that the Fed will ``strongly resist'' a leap in inflation expectations.
In the statement after their April 29-30 meeting, policy makers predicted inflation would ``moderate in coming quarters'' with a ``leveling out'' of commodity prices. Since then, gasoline prices have surged 13 percent to a record, and consumer expectations for average inflation over the next five years reached the highest since 1995.
Bernanke's warning this month spurred traders to bet on a rate rise. There are 33 percent odds of a boost in August and 88 percent in September, according to contracts quoted on the Chicago Board of Trade.
Emergency Measures
One impediment to an early increase may be the Fed's emergency programs providing funds for investment banks. Officials introduced them in March to alleviate the credit crisis that pushed Bear Stearns Cos. close to bankruptcy.
It may be difficult for the Fed to justify raising the cost of credit while at the same time lending to nonbanks, something it's only supposed to do under ``unusual and exigent circumstances'' when no other ``adequate'' credit is available.
The Primary Dealer Credit Facility allows securities firms to borrow from the Fed overnight at the same so-called discount rate available to commercial banks. The Fed said in March the program would be in place ``for at least six months.''
``The withdrawing of facilities creates some risk'' for the credit-market outlook, said Brian Sack, senior economist at Macroeconomic Advisers LLC in Washington and a former research manager at the Fed board. ``They may want to withdraw the facilities and see how credit conditions respond before'' lifting rates, he said.
Policy Priority
In its April 30 statement, the FOMC avoided specifying whether weaker growth or faster inflation was the greater concern. In their paragraph telegraphing policy priorities, officials may reiterate they will ``act as needed'' to promote both economic expansion and stable prices, Fed watchers said.
That would afford policy makers some flexibility. Higher borrowing costs now would hurt banks grappling with mounting losses. Commercial bank loans written off as unrecoverable climbed to 0.97 percent of the total in the first quarter, the highest since 2002, Fed data showed last month.
``It's a delicate balancing act -- don't look for a signal of a strong inclination for raising rates,'' said Michael Feroli, a former Fed researcher who is now an economist at JPMorgan Chase & Co. in New York.
One way of strengthening the message on inflation would be to echo the emphasis that Bernanke, Vice Chairman Donald Kohn and other officials have placed this month on keeping inflation expectations in check. In its last statement, the FOMC said it was important to monitor price developments ``carefully.''
Inflation Expectations
American consumers foresee average annual inflation of 3.4 percent over the next five years, the highest expectation since 1995, according to a Reuters/University of Michigan survey. The five-year outlook among investors has been more stable, at 2.41 percent, up from 2.31 percent in January, according to a measure derived from inflation-linked Treasuries.
Consumer prices rose 4.2 percent in the 12 months to May, government figures show.
``They might emphasize their concern with inflation expectations, saying that it will be necessary to continue to monitor inflation developments, and particularly inflation expectations, carefully,'' said former Fed governor Lyle Gramley, who is now senior economic adviser Washington for Stanford Group Co., a wealth-management firm.