Business and Finance

The U.S. Federal Reserve is expected to hold interest rates steady on Tuesday, acknowledging financial conditions remain strained, but making clear it is still worried about inflation despite a recent pullback in energy prices.

Economists say the central bank is likely to tweak the language of its statement, released when announcing its decision, to reinforce the message that the next rate move will be upward, even though price pressures have eased a bit since its last meeting in late June.

But no interest rate hike appears imminent. The Fed is expected to hold off raising rates until the housing sector is more stable.

“They don’t want to give the impression that somehow they have lost their concern over inflation … that would be fatal,” said former Fed Governor Lyle Gramley, who thinks the Fed could hold rates at 2 percent until well into next year.

A Reuters poll of 15 top bond dealers on Friday found that all of them expect the Fed will leave the benchmark overnight federal funds rate steady at 2 percent.

It is expected to announce the decision at about 2:15 p.m no fax payday loans. EDT on Tuesday.

While a number of Fed officials have been vocal in arguing about the danger of holding rates too low for too long, recent data have supported a patient monetary policy approach, with falling employment and subdued second-quarter growth underscoring the fragile state of the economy.

“The risks of economic weakness and rising inflation remain relatively balanced,” Bank of America senior economist Peter Kretzmer said in a note to clients. 

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New York Attorney General Andrew Cuomo plans to imminently charge Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz), accusing it of fraudulently marketing and selling auction-rate securities, and destroying documents that had been subpoenaed.

In a letter Friday to the bank, David Markowitz, chief of the state’s investor protection bureau, accused the largest U.S. bank by assets of having “repeatedly and persistently committed fraud” by falsely representing to customers that auction-rate debt was safe, liquid and the equivalent of cash.

He also said Citigroup destroyed audiotapes of phone calls on auction-rate debt that were subject to an April 14 subpoena. The bank learned in mid-June about the destruction, but failed to tell Cuomo’s office until June 30, the letter said.

Citi said in an e-mailed statement that recycling tapes is generally its practice. It inadvertently recycled a tape subject to the subpoena, but as soon as it learned it had, it stopped recycling tapes. “We reported this oversight to the regulators, and we have fully cooperated with them in all aspects of this investigation,” the statement said.

Any settlement of the five-month investigation would require New York-based Citigroup to buy back the affected debt at face value, pay damages to investors, and incur a “significant penalty” for its misconduct, the letter said.

Cuomo’s office plans to charge Citigroup under the state’s Martin Act, which allows civil or criminal charges.

Cuomo sued UBS AG (UBSN.VX: Quote, Profile, Research, Stock Buzz) on July 24 over auction-rate securities, accusing the Swiss bank of a “multi-billion dollar fraud” in steering customers into the debt.

Auction-rate securities have rates that set periodically 1500 payday loans. The $330 billion market was once considered safe, but part of it remains frozen after a February meltdown in which brokerages abandoned their role as buyers of last resort. 

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The credit crunch isn’t just for Wall Street anymore.

Penny-pinching consumers are skipping the mall, as big bankruptcy filings this week attest.

While the failures of the Mervyn’s department store chain and Bennigan’s and Steak & Ale casual restaurants may seem mundane - there are other places to get a chicken pesto panini - they’re more evidence of a consumer pullback that poses still another threat to an economy hampered by a loss-soaked banking sector.

Despite the earlier predictions of economic policymakers and other Pollyannas, sliding housing prices and the surging cost of energy and food are clearly hitting the consumer. PNC’s Household Stress Index is above its levels of the 2001 recession and approaching its 1990 highs.

Those stresses are showing up in the service sector. Besides the news from Bennigan’s and Mervyn’s, in recent weeks Starbucks (SBUX, Fortune 500) and Talbots (TLB) have announced cutbacks, and discount apparel chain Steve & Barry’s filed for bankruptcy.

In May, household goods seller Linens ‘n Things filed for Chapter 11 protection. In February, retailers Wickes Furniture, Sharper Image and Lillian Vernon all sought refuge from their creditors. Along with slowing sales, the struggling retailers have been hit by heavy debt loads that became more onerous to service as profits plunged.

The resulting job losses come on top of the hefty cutbacks already seen in the airline and auto businesses, as well as in the financial services industry. And the job cutting isn’t done yet in those sectors, meaning even more downward pressure on consumer spending is still to come. Consumers are the source of more than two-third of U.S. economic activity.

"For households right now, the headwinds are very strong," says Joel Prakken, chairman of forecasting firm Macroeconomic Advisers. Though oil prices have dropped sharply over the past month, Prakken adds that they remain sharply above year-ago levels, which suggests "we haven’t yet seen all the negative effects of energy price increases."

Prakken made his comments as ADP released its monthly employment report, which showed the private sector adding 9,000 jobs last month in its latest anemic showing.

Government data showed that the economy lost 468,000 jobs over the first half of 2008, and forecasters expect employment growth to remain weak at least through the end of the year. Prakken says he believes coming months will show "sluggish growth, if not outright declines" in employment fast cash advance.

The greatest job losses continue to center on the construction and manufacturing sectors, which have been shedding workers continually for almost two years. The latest cutbacks in the auto industry, where Ford and General Motors (GM, Fortune 500) have been hammered by soaring fuel and steel prices, have further dimmed an already gloomy employment outlook.

But other belt-tightening is under way at airlines such as United Airlines (UAUA, Fortune 500), which is cutting jobs to offset the soaring cost of flying its older jet fleet, and American Express (AXP, Fortune 500), which recently warned that reduced consumer spending and soaring bad loans would hurt 2008 profits. Respondents in the Conference Board’s July consumer confidence report said for a fifth straight month that jobs were harder to find.

"What really caught our eye was the continued deterioration in the labor market measures," wrote Merrill Lynch economist David Rosenberg in a report earlier this month.

A look at other numbers suggests that unhappy trends have been building for some time. Adjusted for inflation, retail sales dropped 2.6% from a year ago in the second quarter, marking their third straight quarter of contraction, according to Northern Trust economist Paul Kasriel.

Meanwhile, personal bankruptcies rose 30% from a year ago in the first half of 2008, according to the American Bankruptcy Institute, while business bankruptcies were up 39% in the first quarter, the latest available data.

The trends are ominous as investors consider the prospects for the end of a year that so far has seen the collapse of Bear Stearns, IndyMac and Countrywide and the near collapse of Fannie Mae and Freddie Mac.

"If there is one thing that investors have learnt over the past year, it is that it is impossible to have a strong real economy while the financial economy is ailing and the monetary transmission mechanism is broken," wrote economist Lena Komileva of inter-dealer brokerage Tullett Prebon. "If there is one thing that investors have learnt over the past two decades, it is that it is impossible to have a strong financial economy while the real economy is ailing."  

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