Battered housing developers are getting a bit more optimistic about their prospects for the next six months, an index of the sector’s confidence showed Tuesday.
The National Association of Home Builders/Wells Fargo housing market index rose two points to 18 this month from an all-time low of 16 in July and August.
The survey was taken in the first 10 days of September, and for the most part doesn’t reflect the fall in mortgage rates since the government’s takeover of mortgage finance companies Fannie Mae and Freddie Mac. It also doesn’t take into account this week’s Wall Street turmoil, which may push rates downward as nervous investors move into government bonds.
Immediately after the Fannie and Freddie seizure, "the positive impact on mortgage rates was probably not apparent to many builders," the trade group’s chief economist, David Seiders, said in an interview.
Average rates on 30-year fixed-rate mortgages dipped to 5.93% last week, down from 6.35% on the Thursday before the takeover, according to Freddie Mac’s weekly survey. Rates had been bouncing between 6% and 6.5% since late May.
Builders have been slammed by a combination of falling home prices, soaring foreclosures and an oversupply of unsold homes languishing on the market. But the industry is growing hopeful that consumers will finally take advantage of deeply discounted prices.
Another key reason for the improving outlook: a temporary $7,500 tax credit for first-time homebuyers passed by Congress this summer. The credit essentially works out to a 15-year, interest-free loan.
Many in the industry "are sensing that home sales are nearing a turning point," Sandy Dunn, a homebuilder from Point Pleasant, W.Va. and the trade group’s president, said in a statement. New home sales likely will stabilize by year-end, Seiders predicts.
All three components of the index improved, with the largest gain in the index of builders’ sales expectations over the next six months. That gauge rose by six points to 30.
Gains in builder confidence were seen across the United States, with the largest gain in the Northeast, where confidence rose by six points.
Still, many in the industry are worried about the cancellation of popular programs that let sellers channel down payment money to cash-strapped homebuyers via charities. Those seller-financed down payment assistance programs were eliminated in the housing bill passed over the summer because homebuyers who used them had high default rates.
The latest housing market index reflects a survey of 461 residential developers nationwide, tracking builders’ perceptions of current market conditions and expectations for home sales over the next six months.
Index readings higher than 50 indicate positive sentiment about the market. The seasonally adjusted index has been below 50 since May 2006 and has been below 20 since April.
No doubt you’ve heard that 3-D has become the thing at the multiplex, and that Hollywood bigs like Jeffrey Katzenberg, Robert Zemeckis, and James Cameron are making movies that capitalize on new digital-projection technologies.
What has received far less notice is that 3-D could well turn out to be an even bigger revolution for live broadcast TV. That’s right: Journey to the Center of Your Living Room in 3-D.
The idea of sitting around your home wearing special glasses may sound cumbersome (and dorky). And right now there is a handful of 3-D sets for sale, but no programming to speak of. Plus - let’s face it - it’s hard to get jazzed about yet another new format of TV viewing while too many people still couldn’t tell you whether 1080p is some kind of high-def TV or an IRS tax form. Besides that, count me among the skeptics who have considered 3-D movies a bit of a niche, if not a gimmick.
Yet - forgive me, literary gods - seeing is 3-lieving. A few weeks ago I found myself in a converted warehouse in Burbank, where a rig housing two cameras shot my image and transmitted it onto a flat-screen TV on the other side of the room. With the benefit of polarized glasses - the cheap clear-plastic ones you now put on when you go to a 3-D movie in a theater - I saw myself in three crisp dimensions, practically leaping out of the television at … myself. I was visiting a small company called 3ality Digital, one of a bunch of players trying to push ahead with what is called stereoscopic broadcasting. The company’s calling card is that it made the U2 3-D movie that wowed audiences last year. While it is working on other film projects, 3ality Digital is focusing on the much bigger potential market for live TV.
In fact, demos of live 3-D have been quietly gaining buzz around the TV world: Last year both the NBA All-Star game and a Dallas Mavericks game were broadcast on a closed-circuit feed using equipment from Pace, the company that Cameron helped start and whose equipment he uses to shoot in 3-D. At the International Broadcasting Conference in Amsterdam in September, Katzenberg is scheduled to deliver a keynote in 3-D live from Los Angeles via satellite and 3ality gear. "This is similar to where we were in 2003 with high-def," Chuck Pagano, executive VP of technology at ESPN, told me. "This is a big win for TV in general, because it is jaw-dropping when you see a football or basketball game in 3-D." (See correction.)
Indeed, one thing the first wave of Hollywood 3-D blockbusters clarified is that 3-D can’t make a crummy movie good, but it might make a good movie better. With TV - particularly live TV - it enhances already proven programming. (The porn industry is also drooling over this, for obvious reasons.) As with all newfangled gadgetry, the big question is which standards will prevail: There are already several "3-D ready" displays on the market from the likes of Samsung and JVC, requiring different types of image coding and viewing glasses. In Japan one broadcaster is airing an hour a day in 3-D, and Philips (PHG) has a 3-D monitor for sale that does not require glasses but is, for now, too pricey for mass rollout. "I think the glasses are a necessary evil for the next few years," says Wendy Aylsworth, a Warner Bros. executive who is heading an entertainment industry group’s efforts to set technical standards. Still, expect more and better 3-D TVs to be the buzz at next January’s consumer electronics show.
ESPN’s Pagano estimates the first 3-D broadcasts in the U.S. are three years away. But they might be sooner if Hollywood’s 3-D craze gathers steam. Last month Disney’s Best of Both Worlds 3-D concert film featuring Miley Cyrus/Hannah Montana was aired on TV and released in DVD - but it used the old-timey 3-D format known as anaglyph, which requires those glasses with red and blue plastic lenses. That format works on current TVs - sort of: Unlike the crisp stereographic images seen on the big-screen version, the colors through anaglyph are pretty brutal. Similarly, Warner (which, like Fortune, is owned by Time Warner (TWX, Fortune 500)) is planning to release its recent Journey to the Center of the Earth in DVD, but also using anaglyph. That’s the 3-D equivalent of releasing a color movie in black-and-white for home viewing. And for 3-D aficionados, that won’t do: In TV’s next big thing, the kid doesn’t stay in the picture. He’s practically sitting in your lap.
The Belmont University School of Pharmacy has launched of the school's first research study.
The project will investigate the stability of liquid forms of several drugs previously only available in solid dosage forms such as tablets, capsules.
The study is possible because of $157,000 contract grant with Galipot, the manufacturer of SyrSpend SF, the sugar-free syrup suspension agent for the drug's active ingredients.
The research project will involve Belmont pharmacy faculty members in evaluating 71 different drugs over the next two years.
Liquid forms of drugs are vital to the treatment of infants, children and patients whose illnesses prevent swallowing.
The process of testing the 71 drugs involves mixing the active ingredients into the liquid suspension agent.
"I'm excited that our first research project as a school will serve patients who are often most in need: young children and patients with cancer, stroke or other devastating conditions who have lost their ability to swallow," says Dr. Phil Johnston, dean of the School of Pharmacy in a news release.
The school recently bought high-level equipment which enables the scientists to measure how much of the drug remains active in the solution over time.
It will seat its first class of 75 students in August.
The future downtown Scottsdale could encompass more high-rise office buildings and condos, pedestrian friendly walkways, bridges and crossings, more free parking and circulator trolleys that link to other regional transit systems.
Those goals are part of a draft plan being considered for Scottsdale's urban core. Scottsdale would be open to more high-rise, high-density developments in its downtown area if developers and builders offer amenities and benefits that help the city obtain other goals of the plan, officials said.
The plan also looks to develop more medical facilities in the downtown area.
Mexico's central bank raised its benchmark interest rate for the second straight month to curb the highest inflation rate in more than three years.
The bank's five-member board, led by Governor Guillermo Ortiz, raised the key lending rate by a quarter percentage point to 8 percent today, the highest since December 2005. Policy makers said the inflation outlook has worsened and they will raise their forecasts by an average of about half a percentage point in a quarterly report this month.
The peso surged to a five-year high on speculation the central bank may further increase interest rates, which would widen the yield advantage Mexico has compared with the U.S. The Mexican peso is up 6.8 percent this year against the dollar.
“The statement is very hawkish,'' said Alfredo Thorne, head of Latin America research for JPMorgan Chase & Co. in Mexico City. “As long as inflation expectations remain high and there are risks, then they will keep on hiking.''
Thorne said he expects a rate increase to 8.25 percent in August and possibly another one in September.
Inflation in Latin America's second-biggest economy has accelerated for five straight months on rising food and energy costs.
Consumer prices rose 5.26 percent in June, the first month that inflation exceeded the bank's forecast of no more than 5 percent in the second and third quarters of this year. The central bank targets inflation of 3 percent, plus or minus one percentage point.
`Anchored' Expectations
“It is indispensable to keep inflation expectations well anchored,'' the bank said in its statement today. “Monetary policy plays a fundamental role in this.''
The decision matched the forecast of 21 of 28 economists surveyed by Bloomberg. Seven others said the rate would stay unchanged. The bank released its report 22 minutes earlier than scheduled today because of a technical failure, according to its press office.
“The scenario is worse than expected,'' said Luis Flores, economist at IXE Grupo Financiero SA in Mexico City. “Food and energy prices will continue to exert pressure. The central bank is looking at this and decided to raise rates so inflation doesn't get out of control.''
The peso gained 0.3 percent to 10.2048 to the dollar at 12:38 p.m. New York time from 10.2354 yesterday, and earlier it reached a high of 10.1987. The yield on the government's benchmark 10 percent bond due December 2024 rose 14.7 basis points, or 0.147 percentage point, to 9.23 percent, according to Banco Santander SA.
Mexico's Bolsa index has gained 2.4 percent this year in dollar terms, compared with a decline of 14 percent by the Standard & Poor's 500 Index, the benchmark for U.S. stocks.
`No Choice'
Policy makers were forced to raise borrowing costs as annual inflation exceeds the bank's target of no more than 4 percent, said Bartosz Pawlowski, a strategist at TD Securities Ltd. in London.
“It had no other choice but to act,'' Pawlowski said. “The bank has to tackle inflation expectations and do something about the current situation.''
The bank surprised analysts last month by raising borrowing costs for the first time in eight months.
Gray Newman, chief Latin America economist at Morgan Stanley in New York, said the bank's statement today didn't clarify whether policy makers are likely to further increase rates. Newman said Banco de Mexico may give a clearer indication in its July 30 report, he said.
“They didn't send a signal that they're through for the time being,'' Newman said.
Economy
Mexico's government says the economy is less vulnerable to a slowdown in the U.S. than it was during the U.S. recession of 2001. Still, Mexican consumer confidence fell more than economists estimated in June to the lowest since January 2002.
The bank said today it estimates the economy expanded less in the second quarter than it did in the first. Gross domestic product grew 2.6 percent in the first quarter, or 3.7 percent when seasonally adjusted.
President Felipe Calderon on June 18 announced an accord with industry groups to freeze the price of canned tuna, coffee, beans and about 150 other items in a bid to hold down inflation. Wheat, corn and rice have risen to records this year because of shrinking global stockpiles and more demand.
Calderon has also tried to fight higher food prices by lifting import tariffs on corn, wheat, rice and beans in May. He eliminated import taxes on nitrogen-based fertilizer, and cut in half the tax on imported powdered milk.
Wildfires are threatening homes in California, while East Coast residents brace for hurricane season. Judging by recent catastrophes, people should review their homeowners' coverage to make sure dollar amounts keep pace with current construction expenses.
About two-thirds of U.S. homes were underinsured in 2007 by an average 18 percent, according to data compiled by Los Angeles-based Marshall & Swift/Boeckh, which provides building-cost information for the insurance industry.
Owners often confuse the estimated resale value of their homes, which includes the value of the land, with what it costs to rebuild. The latter is determined by market prices for contractors and building materials, not the local housing market.
“Most policies used to be guaranteed replacement cost,'' said Robert Hunter, insurance director at the Consumer Federation of America in Washington. “That isn't true anymore. It puts people in a rather fragile situation.''
Insurance agents may provide a figure for coverage, but it's the responsibility of homeowners to make sure that's enough. Insurers generally pay up to a set amount, even if it's less than what it costs to restore a home. And, some homeowners mistakenly think they're covered for floods, earthquakes, mold, termites and water-line breaks, according to a 2007 survey by the National Association of Insurance Commissioners in Kansas City, Missouri.
“Companies are always looking at different aspects of homeowners' policies that they may exclude,'' said Marta Arrington, director of consumer services at Florida's Department of Financial Services. “Mold is a good example.''
Hurricane Andrew
While Hurricane Katrina added to pressures on insurers, it was Hurricane Andrew in 1992, which followed wildfires and earthquakes in California, that led to an overhaul of the way the industry wrote homeowners' policies, according to Hunter, who was the Texas insurance commissioner in 1993 and 1994.
Companies turned to consulting firms such as McKinsey & Co. and computer programs with names like Colossus to pinpoint where they were losing money. Results were dramatic, Hunter told Congress in October testimony. Even after record-setting amounts of damage by hurricanes, the insurance industry made $38.5 billion in 2004 and $44.2 billion in 2005, he said.
Thousands of homeowners battled insurers in court after Hurricane Katrina in 2005 on whether damage to their property was due to wind, which is covered by private insurance, or water, which would make the federal flood insurance program liable for repairs.
Inflation Adjustments
Allstate Corp., the largest publicly traded U.S. home and auto insurer, hasn't offered unlimited replacement coverage since the Oakland Hills, California, wildfires in the early 1990s, said Rich Halberg, a company spokesman.
The Northbrook, Illinois-based insurer paid $2 billion to victims of four Florida hurricanes in 2004. Afterward, it undertook a comprehensive review that resulted in new policy exclusions, the purchase of reinsurance to protect against catastrophic losses, and a move away from writing new policies in Florida, Halberg said.
Coverage for excluded items can sometimes be added at extra cost such as riders that automatically adjust for inflation. Customers also can add clauses covering expenses from tougher building codes following a natural disaster. For protection from floods, policies have to be backed by the federal government.
The insurance industry has moved away from a promise to rebuild to policies that stop at a set dollar amount, author Peter Gosselin wrote in his book, “High Wire: The Precarious Financial Lives of American Families.'' It's part of a gradual transfer of risk from companies to individuals, he said.
Hurricanes and Earthquakes
So-called extended replacement cost policies often will cap payouts at 25 percent over reconstruction estimates. This forces homeowners to keep up with local building costs, according to Gosselin's book.
Chubb Corp., which sells policies to higher-income families, said in May it would offer “unlimited replacement coverage'' in Texas. That now makes the coverage available in 41 states and Washington, D.C., said Peter Spicer, a spokesman for the Warren, New Jersey-based company.
States where the insurer maintains a cap are the ones most susceptible to hurricanes and earthquakes: Alabama, California, Florida, Hawaii, Louisiana, Mississippi, South Carolina, Utah and Wyoming, Spicer said. Chubb, the 11th-largest U.S. property insurer, interviews contractors, architects and builders year-round to keep up with building costs.
“In a down real estate market, you may not realize you need more than the market value of your house,'' Spicer said.
Fire Hydrants
In Texas, a homeowner with a $1 million house may pay $2,000 to $2,500 in annual premiums to insure a property with Chubb, according to Spicer. The actual cost depends on location, proximity of fire hydrants and fire stations, security systems and year of construction.
Policies are written annually so insurers can add exclusions. Consumers should talk to their agents at least once a year or when major improvements are made, said Jeanne Salvatore, consumer spokeswoman at the industry-backed Insurance Information Institute in New York.
A policy “may or may not'' cover the costs of rebuilding, Salvatore said. “You don't want to find out when you are filing a claim.''
Japan's government may signal it will consider cutting corporate taxes in an effort to encourage more foreign investment into an economy expected to grow at the slowest pace in five years this year.
The government will review corporate taxes to help cut business costs, according to a draft of its economic and fiscal policy released last week. The final 2008 policy will probably be submitted to Prime Minister Yasuo Fukuda's Cabinet this month.
“The government recognizes the need to cut corporate tax to help improve Japan's competitiveness,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities in Tokyo. “It will be tough to get public support because a company tax cut would reduce revenue and require increasing sales or income tax.''
Fukuda's first economic policy statement as prime minister comes as foreign investors urge Japan allow more foreign investment. European Union Trade Commissioner Peter Mandelson said in April that Japan is the developed world's “most closed'' market and needs to allow more investment from abroad.
The draft said the government will maintain its goal of balancing the budget by 2011, so that it can start reducing the public debt, which the Organization for Economic Cooperation and Development estimates stands at 182 percent of gross domestic product. To achieve this, the government needs to cut spending or find a way to increase revenue to fund social welfare costs.
Heizo Takenaka, economy minister under former Prime Minister Junichiro Koizumi, said in May that the government should lower corporate taxes by 10 to 15 percentage points to revitalize growth.
Tax Rate
Japan's effective corporate tax rate, which includes national and regional corporate taxes, is 40.7 percent, compared with 29.8 percent in Germany, 28 percent in the U.K., and 25 percent in China, according to the Finance Ministry.
A 5 percentage-point cut in Japan's corporate taxes would increase foreign direct investment by 12.7 percent in a year and add about 3.8 trillion yen to the economy over six years, according to Dai-Ichi Life Research Institute.
“Keeping the tax at this high level may prompt Japanese companies to go abroad while also making foreign companies stay away from Japan,'' said Toshihiro Nagahama, chief economist at Dai-Ichi Life in Tokyo.
The government will review the tax burden of companies and examine ways to broaden the tax base, the draft said. Only a third of companies pay corporate taxes in Japan, according to the OECD.
Broader Base
“There is considerable scope of base broadening,'' the OECD wrote in its April report on Japan. It said the drop in revenue from lower company tax would be limited by positive effects from increased investment and a larger corporate sector.
Foreign direct investment in Japan was about 3 percent of gross domestic product at the end of 2007, according to the Cabinet Office. The figure compared with 44.6 percent in England, 13.5 percent in the U.S. and 8.8 percent in South Korea.
Any policy concerning changes to taxation needs the approval of the ruling Liberal Democratic Party's tax panel. Members of the ruling LDP may block a tax cut, concerned it would be unpopular with voters after last July's Upper House election loss.
The government will also have to deal with opposition parties' objections to lowering corporate taxes because they control the upper chamber, said Naoki Minegishi, an economist at Shinkin Central Bank Research Institute in Tokyo.
“Even within the LDP, some legislators are advocating that the government try to boost economic growth first to boost tax revenue,'' Minegishi said on Bloomberg Television.
Lower Tax Revenue
Japan's tax revenue probably fell short of the government's 52.6 trillion yen ($488 billion) estimate last fiscal year as lower corporate profits reduced receipts, the Finance Ministry said this month.
“It's difficult to cut corporate taxes politically and economically when tax revenue is declining,'' said Susumu Kato, chief economist at Calyon Securities in Tokyo. “It will lead to criticism that the tax burden is unfair if the government cuts corporate taxes and raises the sales tax instead.''
The government will also study ways of encouraging companies to bring home profit earned abroad and review rules restricting foreign investment on the grounds of national security, according to the draft of the policy.
South Korea's government said this month that it will cut corporate taxes and expand tax breaks for companies investing in research and development to spur economic growth. The U.K. and Germany also cut corporate taxes this year.
“People need to understand that if corporate taxes aren't cut, Japan will sink,'' said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo. “Japan should cut the taxes to the lower end of the 30 percent level.''
Great Gulf Group Ltd. of Canada has sold the land for its cancelled, 51-story 1401 Lawrence condo project in downtown Denver for $8.4 million, according to Denver County real estate records.
The Toronto developer sold the property, as Great Gulf Colorado LLC, to Renshan LP.
The property is located at 1401 Lawrence St., across from the Colorado Convention Center.
Great Gulf decided not to build the $165 million, 145-unit 1401 Lawrence high rise on June 5 because of poor pre-sales. Had the building gone forward, it would have been the developer’s first U.S. project, and one of downtown Denver’s tallest residential buildings.
"Great Gulf has not achieved the requisite presales to go forward with the 1401 Lawrence project and, regrettably, is cancelling the project," the company said in a statement.
Great Gulf hoped to sell 30 percent to 50 percent of the project’s units before the start of construction. The developer hoped to break ground this year, and complete the project in 2010.
When serious marketing of the project started in June 2007, starting prices for the 1401 Lawrence units were in the mid-$500,000s. Units were going to range from 1,200 to 1,700 square feet in size.
The developer opened its 5,000-square-foot marketing center at the corner of 15th and Lawrence streets in fall 2007.
As spiking fuel and food prices rattle markets and consumers worldwide, the U.S. government on Tuesday formed an interagency task force to assess developments in oil and other commodity markets.
The task force is comprised of staff from the Commodity Futures Trading Commission, the Federal Reserve, the Securities and Exchange Commission, and the departments of Treasury, Energy and Agriculture.
It will examine oil supply and demand factors, investor practices and the role of new players in the markets, such as speculators and index traders, according to a CFTC release.
With gasoline prices exceeding $4 a gallon, government policymakers and members of Congress are straining to find solutions.
"High commodity prices are posing a significant strain on U.S. households, and the [new] interagency task force will aid public and regulatory understanding of the forces that are affecting the functioning of these markets," the CFTC said in the release.
On Capitol Hill Tuesday, Senate Democrats pushed for the government to take some of the billions of dollars in profits being captured by the five biggest U.S. oil companies. But the move was blocked by Republicans, who also thwarted a Democratic proposal to give the government greater power to address oil market speculation that some argue has amplified the surge in crude prices.
The CFTC, which regulates U.S. futures markets, began a wide-ranging investigation in December of U.S. oil markets, with a focus on possible price manipulation. The agency is investigating potential abuses in the way crude-oil is purchased, shipped, stored and traded nationwide. It also recently announced several other initiatives designed to enhance the transparency of U.S. and international energy futures markets.
Economic growth should strengthen over the next 18 months as the current level of interest rates promotes growth and moderates inflation, Federal Reserve Vice Chairman Donald Kohn said today.
“Monetary policy appears to be appropriately calibrated for now to promote both rising employment and moderating inflation over the medium term,'' Kohn said in the text of remarks to the National Conference on Public Employee Retirement Systems in New Orleans. “But a large measure of uncertainty surrounds that judgment and as the economy evolves, so will the appropriate stance of policy.''
Central bankers, having cut the benchmark interest rate by 3.25 percentage points since September, are trying to sustain economic growth without intensifying inflationary pressures caused by record prices for oil and other goods.
Kohn's remarks suggest the Fed is likely to leave the main rate unchanged at 2 percent at their two-day meeting on June 24- 25. Federal funds futures traders see a 90 percent probability that central bankers will leave the benchmark rate unchanged in June. However, Kohn didn't close the door to further cuts, noting there are large uncertainties surrounding his forecast for stronger growth in the second half of this year.
“Uncertainty about how credit conditions will evolve and how businesses and households will react to changing terms and conditions means that we can have even less confidence than usual in our economic forecasts,'' said Kohn, 65.
Low interest rates and a gradual easing of financing conditions, and tax rebate checks should boost growth over the next 18 months, Kohn said.
Economy Firms
“The most likely scenario over the next year or so is one in which economic activity firms during the second half of this year and then gathers some strength in 2009,'' Kohn said. “I expect further, but gradual, improvement in financial markets.''
The collapse of the subprime-mortgage market and the worst housing slump in a quarter century have led to reduced consumer spending and estimates by economists of just 0.1 percent growth this quarter. Financial institutions are reluctant to lend to one another, having reported $379 billion in credit losses and asset writedowns since the start of last year.
“A number of factors suggest that the recovery could be relatively moderate,'' the Fed vice chairman said.
The number of banks reporting tighter lending standards approached a record in April, according to a Fed survey. Businesses have cut jobs for five consecutive months.
The Federal Open Market Committee said “substantial'' interest rate cuts over the past 12 months “should help promote moderate growth over time'' at the conclusion of their April 30 meeting.
Prices Rose
U.S. consumer prices rose less than forecast in April, reflecting cheaper furniture and lodging costs, the Labor Department said May 14. Prices rose 3.9 percent in the 12 months ended in April, down from a 4 percent year-over-year gain in March.
Oil prices rose further in May, hitting a record today of $127.84 a barrel on the New York Mercantile Exchange. Food prices rose at a 6.1 percent annual rate for the three months ending April, according to the Bureau of Labor Statistics.
Rising commodity prices add to inflation pressures and damp demand for other goods, Kohn said. “A tendency for increases in commodity prices to become a factor in ongoing pricing and wage- setting more generally would be a worrisome development that would over time tend to undermine economic welfare,'' Kohn said.
The Reuters/University of Michigan Survey of households showed inflation expectations rising to 5.2 percent over the next 12 months, the biggest jump since 1982. Five-year inflation expectations rose to 3.3 percent in the survey, the highest since August 1996.
`Moderating Inflation'
“My expectations for moderating inflation and limited spillover effects from commodity price increases depend critically on the continued stability of inflation expectations,'' Kohn said.
Construction of U.S. single-family houses in April dropped to the lowest level in 17 years. Builders broke new ground at an annual rate of 692,000 homes, the fewest since January 1991. Residential investment, a component of the gross domestic product account, has declined for nine consecutive quarters, and subtracted about a percentage point from the economy's 2.2 percent expansion last year.
“The supply of existing homes on the market also remains quite high and is likely to be augmented in coming months by rising foreclosures,'' Kohn said. “As a result, further cuts in construction appear to be in train.''
Curtail Risk
Borrowing costs have increased as financial institutions curtail risk. The central bank has increased liquidity for banks and bond dealers through three new lending tools, as well as an expansion of its existing programs. The spread between the three-month London-Interbank Offered Rate and U.S. three-month Treasury bills has narrowed to 82 basis points, the lowest since Feb. 14. The difference in yield was 203 basis points on March 19. A basis point is 0.01 percentage point.
“Improvements in financial markets are vulnerable to negative news on the economy or the extent of credit losses,'' Kohn said.
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