BUSINESS&SPORTS B WEDNESDAY, NOVEMBER 24, 2010
THE MARKETS DOW 30
11,036.37
-142.21
S&P 500
1,180.73
-17.11
NASDAQ
2,494.95
-37.07
2.79
-0.01
$80.97
-$0.77
10-YR NOTE CRUDE OIL
Stocks fall over Korean conflict, EU worries
INTERNATIONAL EDITION
Fed lowers 2011 economic outlook BY CHRISTOPHER S. RUGABER Associated Press
WASHINGTON — U.S. Federal Reserve officials have become more pessimistic in their economic outlook through next year and have lowered their forecast for growth. The U.S. economy will grow only 2.4 percent to 2.5 percent this year, Fed officials said Tuesday in an updated forecast. That’s down sharply from a previous projection of 3 percent to 3.5 percent. Next year, the economy will expand by 3 percent to 3.6 percent, the Fed said, also much lower than its June forecast. Fed officials project that unemployment won’t change much this
year, averaging between 9.5 percent and 9.7 percent. The current unemployment rate is 9.6 percent. Progress in reducing unemployment has been “disappointingly slow,” the central bank said, according to the minutes of its Nov. 2-3 meeting. The darker view helps explain why the Fed decided at its meeting earlier this month to launch another round of stimulus. The central bank plans to buy $600 billion in Treasury bonds over the next eight months in an effort to lower interest rates and spur more spending. The Fed is slightly more optimistic about 2012, in part because officials expect the bond-buying program to have a positive im-
pact. The economy should grow 3.6 percent to 4.5 percent that year, a tick better than June’s forecast of 3.5 percent to 4.5 percent. The economy will grow 3.5 percent to 4.6 percent in 2013, the central bank said, the first time it has issued projections for that year. The economic outlook was prepared at the Fed’s meeting earlier this month and released Tuesday. It reflects the views of the Fed’s board of governors and its regional bank presidents. The jobless rate will be 8.9 percent to 9.1 percent in 2011, Fed officials predict. That’s much worse than June’s projection of 8.3 percent to 8.7 percent. By 2012, when U.S. President
Barack Obama faces the electorate, unemployment will be 7.7 percent to 8.2 percent, up from the previous forecast of 7.1 percent to 7.5 percent. The Fed’s forecasts of a slow economy with only gradual improvement in the job market are broadly similar to those by private economists. An Associated Press survey of 43 leading economists last month found that they expect the economy to expand just 2.7 percent in 2011, after growing only 2.6 percent this year. The unemployment rate will remain at 9 percent by the end of 2011, the economists said. • TURN TO OUTLOOK, 2B
BY MATTHEW CRAFT AND PALLAVI GOGOI Associated Press
NEW YORK — Stocks fell Tuesday as a flare-up of tensions between North and South Korea combined with downbeat news on the economy gave investors plenty of reasons to sell ahead of the Thanksgiving holiday. The dollar and gold rose as investors sought safe places to park money. North Korea and South Korea exchanged artillery fire, killing at least two South Korean marines. That came as investors were already concerned that a bailout of Ireland may not be enough to contain Europe’s debt crisis. Borrowing costs for Portugal and Spain rose, leading Spain to trim the size of a debt sale. In the U.S., sales of previously-owned houses dipped 2.2 percent in October. Also, Federal Reserve officials became more pessimistic and lowered their outlook for economic growth for the next year. The Dow Jones industrial average fell 142.21, or 1.3 percent, to 11,036.37. The Standard & Poor’s 500 lost 17.11, or 1.4 percent, to 1,180.73. The Nasdaq composite index fell 37.07, or 1.5 percent, to 2,494.95 The clash between North and South Korea raises tensions in Asia, but was seen as less of an immediate danger in the United States. Traders said the showdown was seen by many as an excuse to pare back exposure to risk ahead of the Thanksgiving holiday Thursday. Trading is expected to be light Wednesday as people leave early. Markets will be open for an abbreviated session on Friday. Hewlett-Packard was the only one among the 30 stocks that make up the Dow Jones industrial average to rise. Shares gained 2.2 percent after the technology company beat Wall Street’s expectations for revenue and income thanks to strong corporate spending. Energy shares led the decline as the price of crude oil fell. Chevron fell 2 percent, while ExxonMobil lost 1.7 percent. A widening probe into insider trading was still weighing on financial shares Tuesday, a day after FBI agents raided the offices of three hedge funds. JPMorgan Chase was the worstperforming major bank with a 2.3 percent decline, followed closely by Goldman Sachs with a 2 percent fall. In other gloomy news on the economy, the Federal Reserve lowered its forecast for growth through next year. In a report releasing minutes from its last meeting Nov. 3, the Fed predicted that the economy will grow only 2.4 percent to 2.5 percent this year. That’s down sharply from a previous projection of 3 percent to 3.5 percent. Next year, the economy will expand by 3 percent to 3.6 percent, t he Fed said, also much lower than its June forecast. Treasury prices rose, sending their yields lower. The yield on the 10-year Treasury slipped to 2.79 percent, down from 2.80 percent late Monday. That rate is a widely used benchmark for business and consumer loans including mortgages. The dollar rose 1.3 percent against an index of six other currencies and the euro fell 1.8 percent against the dollar. Gold rose 1.5 percent to $1,377.60 an ounce.
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POLITICAL GAMES FED ADOPTS WASHINGTON TACTICS TO COMBAT CRITICS
SUSAN WALSH/AP
NEW PLAN: Federal Reserve Chairman Ben Bernanke has been haltingly adopting Washington tactics such as strategically placed interviews, behind-the-scenes assuaging of opponents and reaching out to potential allies on Wall Street and Capitol Hill. BY SEWELL CHAN
New York Times Service
WASHINGTON — Faced with unusually sharp ideological attacks after its latest bid to stimulate the economy, the Federal Reserve now faces a challenge far removed from the conduct of monetary policy: How to defend itself in a hyperpartisan environment without becoming overtly political. Caught off guard by accusations from congressional Republicans, Sarah Palin, Tea Party activists and conservative economists, the central bank and its chairman,
Ben S. Bernanke, are pushing back, making their case on substantive grounds but also haltingly adopting the tactics of Washington battle, like strategically placed interviews, behind-the-scenes assuaging of opponents and reaching out to potential allies on Wall Street and Capitol Hill. The stakes are high. Last week, one House conservative announced legislation to strip the Fed of its mandate to promote jobs and have it focus solely on containing inflation. The attacks, coupled with criticism from foreign officials, have
introduced enough uncertainty into global financial markets to potentially undercut the Fed’s plan to drive down interest rates, which rise or fall as investors anticipate Fed action. Behind the scenes, Bernanke has signaled that he is steadfast on the Fed’s plan to buy $600 billion of government securities through June in an unorthodox effort to push down long-term interest rates and spur the anemic recovery. In doing so he is trying to make clear to the markets that the Fed will not reverse course unless there is a compelling reason to do
so, like a big increase in inflation expectations or a sharp rise in commodity prices. Whether the uptick in yields represents genuine market anxiety about the Fed’s inflation-fighting commitments, or that the Fed’s policy has already been effective at accelerating the recovery, the attacks are a distraction and could hurt the Fed’s ability to set policy. “That is certainly the effect of congressional criticism,” Alan Greenspan, Bernanke’s predecessor, said. • TURN TO FED, 2B
Irish premier faces early election A dim view of betting on start-ups
BY SHAWN POGATCHNIK Associated Press
DUBLIN — The Irish government is teetering toward collapse after being forced to accept a massive bailout from the European Union and the International Monetary Fund. Ireland’s Prime Minister Brian Cowen said late Monday he would call an election for early 2011, once Ireland passes an emergency budget and finalizes the bailout. The admission represented a huge political blow to Cowen, who only days ago was denying even the need for a bailout to solve the problems brought on by Irish banks’ reckless speculation in overpriced real estate. His coalition partner, the Green Party, forced his hand, saying it would quit the government and then demand an election in January. Cowen resisted pressure to resign immediately, but soon even lawmakers in his own Fianna Fail party also called on him to go. Cowen said he could not quit now because that would delay Ireland’s deficit-slashing 2011 budget and the bailout negotiations — and jeopardize efforts to sustain the nation’s cash-strapped banks. He insisted he would step down and face reelection only after Ireland’s most brutal budget in history is passed and talks with the International Monetary Fund and
BY ANDREW ROSS SORKIN New York Times Service
Analysts say Cowen faces an uphill struggle even to clear the first hurdle of the budget process on Dec. 7, when the spending plan is unveiled and faces an initial vote. Ireland’s rescue, which follows a Greek bailout in May, is the European Union’s latest attempt to win back market confidence and keep its 16-nation euro currency strong and stable. But the cost — both monetary and political — keeps rising by the day.
here’s too much money chasing too few deals. Sean Parker, the entrepreneur behind Napster and Facebook now turned investor, was talking about the state of the venture capital industry last week over coffee. At 30, Parker, who was recently portrayed by Justin Timberlake in The Social Network, has been thinking a lot about innovation — or the lack of it — in the United States. And he’s come to a depressing conclusion about the money industry that he says used to be “the engine of innovation” for this country. “The risk-reward doesn’t work out in favor of putting money into venture capital anymore,” he said, even though he himself is a partner in a venture capital firm that owns stakes in Facebook and SpaceX, the private spaceflight company run by Elon Musk, a co-founder of PayPal. To Parker, a night owl who had awakened before his usual rising time of noon to meet with me, the problem
• TURN TO IRELAND, 2B
• TURN TO START-UPS, 2B
T PETER MORRISON/AP
UNDER FIRE: Lawmakers in Ireland Prime Minister Brian Cowen’s own party have tried to oust him. Above, offices of the Fianna Fail party were vandalized in Trim, Ireland, on Tuesday. the European Central Bank produce a bailout deal expected to approach ¤100 billion ($136 billion). EU economic and monetary affairs minister said nothing should slow Ireland’s passage of its budget and the negotiation of a bailout. “It is essential now to stop the financial bush fire concerning Ireland before it becomes a European-wide forest fire,” said Olli Rehn, the EU minister most closely involved in helping eurozone governments control their deficits and finance their debts.
11/24/2010 4:42:24 AM