Business&Money 14
A newspaper with issues
THURSDAY, FEBRUARY 1, 2007
The going rate Sea change prompts Fed to leave interest rates unchanged
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ents make when planning for college. The workshop dates are Thursday, February 8th at the Montana Avenue 7:15PM8:45PM, Saturday, February 10th at the Santa Monica Main Library 10:15 AM. to 12 PM, and Tuesday, February 13th at the Santa Monica Main Library. The workshop will be taught by Shanee Chavis an affiliate of the College Planning Network, Inc. the nation’s leading expert on paying for college. Seating is free, but limited by the size of the room. To reserve your seat, call 310-581-7954 leave a message and receive a confirmation
A D V E R T I S E M E N T
BY MARTIN CRUTSINGER AP Economics Writer
WASHINGTON Since Federal Reserve Chairman Ben Bernanke and his colleagues last met, an economic sea change has occurred that has left financial markets glumly contemplating the central bank’s next moves on interest rates. Analysts didn’t expect the Fed to change rates when policymakers wrap up their two days of meetings. But they are braced for the possibility of rate increases later this year, a far cry from the rate cuts they had been expecting just a few weeks ago. Since the Fed’s last meeting Dec. 12, the economic news has been uniformly good, with job growth stronger than expected, energy prices dropping and the overall economy navigating the rough waters of a severe housing slump. Many analysts have gone from forecasting that the Fed would cut rates possibly three times this year to thinking that the most likely outcome is that the Fed will leave rates steady for a considerable period. “Some were expecting rate cuts as early as March and now it is possible the Fed will keep the federal funds rate unchanged for the rest of the year. That is the harsh reality that the markets are now facing,” said David Jones, chief economist at DMJ Advisors, a Denver-based forecasting firm. Such an outcome would mean that banks’ prime lending rate, the benchmark for millions of consumer and business loans, will remain at 8.25 percent. The Fed last changed rates back in June when it pushed the federal funds rate, the interest that banks charge each other, up to 5.25 percent. It marked the 17th consecutive meeting that the central bank had nudged rates up by
a quarter-point. Before the Fed started raising rates in June 2004, the funds rate was at 1 percent and the prime rate stood at 4 percent, both the lowest levels in more than four decades. After raising rates in June, the Fed left the funds rate unchanged, hoping it had done enough to engineer a “soft landing” in which the economy slows and inflation pressures are lowered but the slowdown doesn’t deepen into a recession. For a time, recession worries were on the rise as analysts worried that a severe slump in the housing market might be enough to bring on a downturn. Many expected growth would remain at that lackluster pace or perhaps dip even further in the final three months of the year. However, with a string of stronger-thanexpected results in recent weeks on jobs,
IF WE HAVE A SOFT LANDING, THERE IS ABSOLUTELY NO REASON FOR THE FED TO LOWER INTEREST RATES ...” Lyle Gramley Senior economic adviser
consumer spending and manufacturing, analysts believe the economy managed to rebound in the final three months of 2006 and is growing at a respectable pace of around 3 percent in the current quarter. Many economists believe that all the signals are flashing that Bernanke, wrapping up his first year as Fed chairman, is close to achieving a soft landing. “If we have a soft landing, there is absolutely no reason for the Fed to lower interest rates and the only question is will we get enough progress on inflation to keep the Fed from raising rates,” said Lyle Gramley, senior economic adviser at Schwab Research Group, a financial services firm.
Video is emerging as key to Cisco’s steady growth BY JORDAN ROBERTSON AP Technology Writer
SAN JOSE, Calif. So far, when it comes to making money, the online video explosion is mostly about potential. Studios selling TV shows and movies for download, and Web sites like YouTube that link ads to user-generated content, stand to reap billions from the Internet’s hottest trend. But a select group of companies whose products exist largely outside the public view are already profiting handsomely. Led by industry powerhouse Cisco Systems Inc., the network equipment makers are seeing their gear snapped up by service providers who must upgrade their networks to accommodate surging Internet traffic and booming broadband demand. “Cisco would like to see video delivered to every device everywhere,” said Zeus Kerravala, a network infrastructure analyst with Yankee Group. “If you’re looking to something to create the next wave of net-
work upgrades, video is front and center. It drives bandwidth like we’ve never seen before.” Video consumes thousands of times the network space of e-mail messages, and demand is growing so fast that it’s poised to overtake peer-to-peer file sharing as the dominant form of Internet traffic. But online video — which is projected to grow from $1.3 billion in revenue last year to more than $7 billion by 2010, according to the market research firm Parks Associates — isn’t yet the profit machine the online community envisions. Companies are still grappling with how to generate reliable revenue from content that is largely free and often littered with copyright-infringement land mines. That’s a rich opportunity for Cisco, Alcatel-Lucent, Juniper Networks Inc. and Redback Networks Inc., companies that build the Internet’s infrastructure. Their products help the cable companies and telecoms manage traffic load.