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COPYRIGHT 2005 FDCH e-media
Original Source: NIGHTLY BUSINESS REPORT
PAUL KANGAS, NBR ANCHOR: The Federal Reserve takes the wind out of Wall Street`s sails as the Dow falls almost 100 points. The Fed raises interest rates as expected, but unexpectedly raises caution flags about inflation. We`ll examine the Fed`s decision and get some analysis on what could be ahead.
SUSIE GHARIB, NBR ANCHOR: More problems for insurance giant AIG. Shares of the company`s stock fall again today after it fires two top executives right in the middle of a huge investigation into whether it cooked its books.
KANGAS: The clock is ticking for products bearing a made-in-America label, like this one. But some manufacturers are bucking the trend to head east, insisting their products be made right here at home.
GHARIB: Also tonight, dealing with disaster and the financial fallout it often brings. We begin a special series of reports looking at how you can hope for the best but plan for the worst.
KANGAS: I`m Paul Kangas.
GHARIB: And I`m Susie Gharib. This is "Nightly Business Report" for Tuesday, March 22nd.
(COMMERCIAL BREAK)
GHARIB: Good evening, everyone. The Federal Reserve raised interest rates today by 0.25 percent, and said it is increasingly concerned about inflation. Those inflation worries led to a sell-off on Wall Street. The Dow tumbled 94 points, the Nasdaq fell 18, and bond yields soared to an eight-month high. As Erika Miller reports, the big question is whether the Fed will now become more aggressive.
ERIKA MILLER, NBR CORRESPONDENT: It came as no surprise to Wall Street that the Federal Reserve boosted its key interest rate by a quarter of a percentage point. The increase pushes the federal funds rate to 2.75 percent. That`s the highest level in three years.
LARRY KANTOR: The concern is that if they allow monetary policy to remain overly accommodative, inflation pressures, which respond with a lag, will gradually feed through, and you`ll end up with higher inflation.
MILLER: And inflation was the main focus of traders today as they examined the statement explaining the Fed`s decision. In it, the Fed said, quote, "Pressures on inflation have picked up in recent months, and pricing power is more evident."
ROBERT DICLEMENTE, SALOMON SMITH BARNEY: They focused exclusively on inflation in a somewhat hawkish way, in a way that expressed a little bit of concern about recent inflation statistics. And I think that suggests to many people that interest rates might need to go higher than they would have thought beforehand.
MILLER: But the Fed also repeated its intent to raise rates at a, quote, "measured pace." Wall Street has come to interpret that phrase to mean steady, quarter point increases.
So when will the tightening cycle end? The Federal Reserve has said it wants to raise rates to a level that neither stimulates nor slows the economy. Most economists speculate that neutral point falls somewhere in the 3 to 5 percent range.
For now, Wall Street is confident the Fed will nudge up rates by another quarter point at the next meeting in May. Some economists also expect the Fed to drop its measured pace guidance then.
UNIDENTIFIED MALE: Removing measured pace, which has come to mean to the market 25 basis points, will give them more flexibility to hike 50 basis points if they think it is necessary.
MILLER: Bond traders are debating if and when the Fed will have to start raising rates more aggressively. Some say a half-point move is not out of the question at the June meeting.
Erika Miller, Nightly Business Report, New York.
KANGAS: One piece of information the Fed considered before making its decision today: February`s producer prices. New data shows inflation at the wholesale level remains under control. Last month`s producer price index rose 0.4 percent, the biggest hike in three months. But factor out soaring energy and food costs, and the so-called core rate rose just 0.1 percent. Economists say inflation at this level is not a threat to the economy.
(BEGIN VIDEO CLIP)...
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