tv Nightly Business Report PBS September 29, 2010 6:30pm-7:00pm EDT
fiscal policy, if we're going to be able to get to full employment over a reasonable period of time. >> tom: it's our exclusive interview with eric rosengren, president of the federal reserve bank of boston. you're watching "nightly business report" for wednesday, september 29. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by: this program is made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt
>> susie: good evening everyone. should the federal reserve take more action to fix the economy? one fed policymaker today called on the central bank to respond "aggressively and vigorously." that's what boston fed president eric rosengren told "nightly business report" in our exclusive interview. his view is critical because he's a voting member of the central bank's key policy- setting committee. >> tom: but susie, two other officials-- the presidents of the minneapolis and philadelphia fed banks-- disagreed with rosengren. they said today they're opposed to the central bank making another round of bond purchases to boost economic activity. >> susie: when i talked with rosengren, i asked him to explain why he thinks the fed should respond so vigorously. >> so by vigorously, the economy has been growing slower than any forecasters expected , and slower than we'd like to see. we want to get back to full
employment. if we're going to do that we need more aggressive monetary fiscal policy if we're going to be able to get back to full employment over a reasonable period of time. and the inflation rate is low, we're at a rate a little below 1% if you measure it by -- we've said in theonger run we hope to get to 2% inflation rate. so in order to do that we need to have the economy growing more rapidly than it's been doing recently. >> susie: the financial mark markets are expecting the fed to pump more money into economy by buying things like treasurys. do you see those purchase e as being big or small? >> the size partly depends on where the economy is and whether we think the economy needs to go. so i think it's too soon right now to decide exactly what the size should be. but i would say that we have a long way to go to get where we want to go, so i think we have to take that into account. >> susie: but make a case for a large scale purchase, something like a trillion dollars. >> so the size of the program
depends on how quickly you want to get to where you want to go. so in the long run we said we want an inflation rate of 2%, and an unemployment rate around 5%. that's far from where we are right now. so if you want to get more more quickly in a reasonable time frame, it would require a more aggressive program. >> susie: so you're saying it would take a reasonable amount of time to get your objective, what do you mean by reasonable amount of time? >> it's going to take three to five years before we start seeing an unemployment rate in the range we'd like to see it, and inflation is a very slow moving process. we want it to happen overnight. it's just not going to happen overnight, it's going to take a while before we get back to where we were. >> susie: does a trillion dollars sound like the right number to you? >> i think this isn't time to discuss what the right number is i think we have to look at all the data and that's what we'll do at the next meeting. >> susie: when do you visualize starting this purchase program, will it be at the next meeting the fed has in november? >> i think we'll be considering policy at each meeting and i
think the last meeting we highlighted that it's something we've been kfr considering. there will be discussion at each of these meetings. >> susie: what are you watching to tell you that the time is right to act? >> we look at financial market variables, we look at what's happening in the housing sector, what's happening with consumption. and we certainly look at what's happening with prices across a wide stretch of the economy, to understand whether there are inflationary pressures or disinflationary pressures going up. >> susie: so what do you hope these actions of the purchase program will achieve? >> the first effect is buy interest rates. so if we buy more treasury securities that push tess price up and push tess interest rate down. but it doesn't just push the rate down on treasury securities other long-term rates also go down. that helps people who are thinking about buying a house because if the interest rate goes down it will be more affordable to purchase a house. from a corporation standpoint if the interest rate is lower, some projects that weren't feasible at a higher interest rate become
feasible at a lower interest rate. so one of the principal -- prison spell ways it has an impact is by having lower interest rates. >> susie: but we haven't seen consumer others businesses motivated to spend. so why would even lower interest rates make a difference? >> lower interest rates will have some impact. will have some impact on people buying houses, on investment projects. it also has some impact on the disinflationary pressures that we've been having. so with so much slack in the economy, we've actually had the inflation rate going lower than we would like. >> susie: to you think these policys will create jobs? >> i think they will, that would be one reason we're doing it. if we didn't think it would have an impact on unemployment there would be no reason to do that. >> susie: what do you think are the risks if the fed does nothing? >> so if the fed does nothing, more than likely we'll have high unemployment rate for longer than we otherwise would. and there's concern that we will have disinflationary environment
in which because of the slack in the economy the inflation rate would start to continue to trend down. >> susie: do you think the economy has a deflation process? >> i think we have a disinflation problem. deflation is where prices are actually negative. i don't think we have a e deflation problem and i'm not expecting we'll have a deflation problem. but i do think that it's a risk that we have to be concerned about. the closer your get to zero, the more likely it is that you get below zero. >> susie: so is it correct that the fed wants to create some inflation? >> we want in the long run to have inflation close to 2%. we're lower than that right now. >> susie: what kind of growth do you expect for this year? >> most private forecasts have growth around 2%. my guest is that we'll come in pretty close to that. at 2% growth you're not going to get any improvement in the unemployment rate, in fact you might see unemployment go up from where it is now. >> susie: what about for 2011, what is your outlook for growth
and employment? >> i think the best guess is growth closer to 3.5% as we get to 2011. but i would say the risks are still on the down side of that forecast. >> susie: where would you see unemployment in the, in 2011? >> probably a little below 9% would be a reasonable forecast. that's still a very high unemployment rate. and would indicate that it's going to take us quite a while before we get to full employment. >> susie: so if the economy grows 3.5% or more, as you're projecting, but the unemployment rate stays high, would you think that the fed has done its job? >> right now we're missing on both of our objectives. the inflation rate is too low and the unemployment rate is too high. so directionally i think it fairly clear which direction we should be moving. how much we should do and exact timing, that's a difficult question that requires a consensus, and that's why we have these meetings every six weeks. but it's clear right now that we're not where we want to be and we need to take some action
to get there. >> susie: you can read the transcript of my entire interview with eric rosengren on our website. you'll find it on n.b.r. on pbs.org. >> tom: here are the stories in tonight's n.b.r. newswheel: stocks slipped. the dow fell 22 points, the nasdaq and the s&p 500 were both off about three points. trading volume was down a little on the big board from yesterday, but still over one billion shares. on the nasdaq, volume remained over 2.1 billion for the second day in a row. johnson and johnson's c.e.o. will tell congress his company is ready to start shipping children's tylenol and benedryl again. they were pulled from the market in april. in testimony released ahead of a house hearing tomorrow, william weldon said he knows the company let the public down. the house is probing how j&j handled that recall. j.p. morgan chase is suspending home foreclosures while it takes a closer look at how it handles paperwork. chase fears loan officers may have signed off on foreclosure documents without reviewing the
cases. chase says the move affects 56,000 home loans. >> tom: still ahead, it's been a decade since major league baseball teams were forced to share revenues. has that helped teams knock it out of the park, or has it been a swing and a miss? some answers as we continue our series, "the business of baseball." >> susie: a warning from the u.s. congress to china tonight. just a few moments ago, the house of representatives voted overwhelmingly in favor of a bill that puts more pressure on china to revalue its currency. president obama also weighed in today on what darren gersh reports is a rare area of bipartisan agreement. >> reporter: 10%, that's how much the president said china's currency was undervalued. but then he added this to a backyard meeting in des moines. >> let me not say 10%, because i don't want the financial markets to think i've got a particular... there is a range of estimates. but i think people generally think that they are managing
their currency in ways that make our goods more expensive to sell and their goods cheaper to sell here. >> reporter: slip of the tongue or not, the president's 10% figure is on the low end. others put the imbalance at up to 40%, which is why china's currency was a source of rare bipartisan agreement in the house today. first from the chairman of the ways and means committee, sander levin of michigan. >> a tilted field of competition. the estimates are it means 500,000 to 1.5 million jobs. >> reporter: if the republicans take back the house, this man, david camp, will likely take over levin's committee chairmanship. and he'll be the one writing the nation's trade laws. camp made clear a change in party control won't change concerns about china trade policy in the house. >> i will vote for this bill, because it sends a clear signal to china that congress' patience is running out, but does not
give china an excuse to retaliate against u.s. companies and their workers. >> reporter: and camp added that there are other trade issues with china that he considers even more important than an undervalued currency. >> issues like intellectual property rights, indigenous innovation, export restrictions on rare earth elements and other items, and a host of other, non- tariff barriers that are wreaking havoc on american employers, their workers and our economy. >> reporter: chinese officials announced today they would "enhance exchange rate flexibility," but they provided no details on what that might mean. so far this year, the chinese yuan has risen just 2%. darren gersh, "nightly business report," washington.
>> suzie: a lot of talk today about gold prices going higher to another record, and the dollar getting weaker as well as stocks. >> tom: we just heard darren's conversation about the chinese currency and we continue to see the dollar move lower as we are about at the end here in the third quarter, let's get everybody updated on tonight's market focus. >> tom: this month saw three weeks of strong rallies, but this week the market has been marking time so far. energy stocks provided some upside as oil prices climbed to a two-week high. oil inventories fell more than expected last week. independent oil and natural gas producers were the best performing of the group.
cabot oil rallied 5% to a six- week high. range resources also jumped on strong volume, up 5%. and e-q-t announced successful test wells for shale natural gas in pennsylvania. shares added more than 4%. b.p. is at its highest price since early august, when its blown-out gulf oil well was first capped. c.e.o. tony hayward officially resigns friday. incoming c.e.o. bob dudley announced a shake-up in the safety management of the company. shares rallied. the financial sector was among the losers, with several federal reserve officials talking today, including our exclusive interview with boston fed president eric rosengren. three of the five biggest losers of the dow industrials were financial stocks. american express dropped 1.5% on light volume. j.p. morgan fell more than 1% to a three-week low. and bank of america fell.
about 1%. a.i.g., meantime, saw a fractional gain, but on twice its usual volume. a couple of items for a.i.g. the company's board is finishing up its plan to repay the government bailout. this plan includes converting uncle sam's preferred stock to common stock, which would increase the government's ownership to more than 90%. the government would then slowly sell its stock. according to the "wall street journal," the government's common stock would be priced $35 per share. with today's closing price of over $37, that would be a profit. secondly, a.i.g. is close to selling two japanese units to prudential for $4.8 billion. an announcement may come as soon as tomorrow. with all the fed talk lately about efforts to reignite the economy, and congress stepping up pressure on china over its currency, we've seen the dollar resume its move down. this e.t.f. follows the dollar against a basket of currencies. this month, it has broken below its august low, and tonight sits at its lowest price since mid- january. while the s&p 500 has been able to break out of its summertime range this month, the dow
transportation index has not. this could be important. here's the e.t.f. based on the transportation index. many pros look at this sector to confirm a rally is sustainable. so far, that confirmation hasn't happened. fedex is in that group. shares saw heavier volume with a 2% rally today after announcing price increases. some of the higher prices will be offset by lower fuel surcharges. a three-year-old mistake could mean a charge in the most recent quarter at coffee company green mountain roasters. more importantly, perhaps, is a s.e.c. investigation into how it recognizes revenues. that sent investors fleeing, driving the stock down 16% on huge volume. the stock was at an all-time high just on monday. a single-serve coffee system has been a hit. a trio of specialty consumer companies turned in mixed earnings. r.v. maker thor industries rallied 14%, earnings and margins increased. greeting card maker american
greetings saw higher costs and drop in sales. shares fell 9%. and mattress maker sealy also saw sales fall, as did its stock today. and that's tonight's "market focus." >> susie: it's as american as apple pie, but is owning a major league baseball team a license to print greenbacks? for some smaller teams, it can be. that's because about a decade ago, major league baseball began an "all for one, one for all" policy when it comes to revenues. as ken burns' baseball documentary "the tenth inning"
wraps up tonight on pbs, we wrap up our stories on "the business of baseball." jeff yastine tackles revenue sharing and explains why, for some teams, it pays to lose. >> reporter: the concrete beams rise out of the ground, looking like the skeleton of some high- rise condo. but, this is the future home of major league baseball's florida marlins. the stadium is publicly financed, and work is moving quickly for the 2012 home opener. the marlins have a reputation for being tight-fisted. player salaries are some of the lowest in the league. attendance has been at or near the bottom as well. yet, internal team documents leaked to the media last month showed some clubs, like the marlins, are hitting home runs on their profit-and-loss statements. the marlins earned $39 million in operating income in 2008. the pittsburgh pirates reported $22 million, despite 18 losing seasons in a row. the profits were helped in large
part by what's called revenue sharing. that's where all major league teams kick cash into a central fund that's divvied up and distributed back to the teams. the lion's share goes to small -market teams. revenue sharing, says j.p. morgan's rich walden, is supposed to make financial equals of teams as diverse as, say, the new york yankees, and the kansas city royals. >> there were serious concerns whether 30 teams could survive in the major leagues. so, it's really done quite well for major league baseball. >> reporter: revenue sharing money is supposed to be used to sign up better on-field talent, and result in a league where any team could be in contention for the playoffs. but there's always been a suspicion that some teams just don't want to spend much to sign up a great power hitter-- using revenue-sharing cash to power their profits instead. for many fans, the leaked financial reports were a confirmation of sorts, says sports business writer maury brown.
>> that operating income has shown that a lot of these clubs, which are at the bottom of the payroll lists, which have spent very little on player talent, have been pulling in profits. and so it's been a concern for a while. i think these league documents kind of put that pen to paper, and gave some solid numbers. some proof to the pudding. >> brown says overall, revenue sharing has helped the league. the tampa bay rays ballclub, with low attendance, is one example of that. the rays went to the world series two years ago, and now sit atop the american league west division. but it doesn't look good, says sports business professor jim riordan, when teams plead poverty in order to get public financing for building a new stadium. >> it's very difficult in this day and age to do that now, because there's also a cry to help hospitals, roadways, infrastructure, schools, and then you're saying "build me a stadium." >> reporter: a few baseball observers want to do away with
revenue-sharing, calling it the equivalent of team welfare. some analysts believe teams could see salary floors-- a way of mandating how they spend their revenue-sharing money. >> i don't think we'll see a major overhaul, anything of that nature, but we'll see some firming up of this. there has to be some method by which some of these clubs at the bottom of the payroll are held accountable, and made to incentivize and spend more. >> reporter: baseball is a venerable game, steeped in tradition. change-- both on and off the field-- comes slowly. but when the boys of summer start play next year, adjustments in how revenue- sharing works will likely be part of their teams' field of play. jeff yastine, "nightly business report," miami. >> tom: here's what we're watching for tomorrow: fed chief ben bernanke and the f.d.i.c.'s sheila bair head up a who's who of banking regulators on capitol hill to talk about
reforming wall street. we'll also see an updated estimate on second quarter g.d.p. and, sam stovall looks ahead to the fourth quarter. he's the chief investment strategist at standard & poor's. liberty mutual's initial public offering of a subsidiary was supposed to be one of this year's largest, but it was delayed indefinitely today. the insurer blamed the stalled economic recovery and volatile stock market. liberty mutual also said it's been unable to price shares of its liberty mutual agency as high as it would like. the company has planned to sell more than 64 million shares for between $18 and $20 each, raising more than $1 billion. >> tom: ambac financial group sued bank of america, accusing its countrywide unit of massive fraud. ambac says it lost nearly $17 billion by insuring mortgage securities that went bad. ambac says the home loans were made to borrowers who didn't have the means to repay them. ambac wants bank of america to pay it back in full.
with that in mind, tonight's "money file" looks at a financially friendly alternative to divorce court. here's julie stav, senior financial expert at univision. >> going through a divorce is never easy, but in what may be the worst economic downturn most of us have ever experienced, breaking up can be even more financially devastating due to increasing legal fees, overcrowded court calendars and the reduced values of homes, investments and retirement accounts. but, as it often occurs, out of desperation comes inspiration. and, according to recent studies by the institute for divorce financial analysts, only 1% of the cases using alternative divorce methods cost couples more than $15,000, compared with 11% of litigated cases. this new process, also called mediation, takes the litigation out of the courtrooms and replaces it with consultations in the offices of professionals like financial planners, mental- health counselors and attorneys
who specialize in collaborative law. the results of these meetings may be unconventional, such as signing an agreement that allows a spouse to remain in the home after selling to the other party, maintaining joint ownership of an existing business or agreeing on the terms of an eventual home sale at a future date. check your official state website for the availability of these new divorce alternatives and discover how to avoid breaking up your bank account during your breakup. i'm julie stav. >> tom: you probably celebrate it every day, but today is national coffee day. a recent poll by dunkin donuts and careerbuilder looked at which jobs need java to get through the day. nurses and doctors topped the list, followed by hotel workers, designers and architects. financial and insurance sales reps came in fifth. food preparers, engineers and teachers, and marketing and p.r.
pros were on the list. scientists rounded out the top ten. the hudson household who leaves early in the morning tends to run on coffee as well. >> susie: i know the feeling. fill it up. >> tom: especially when those guys get up early, as they tend to do. thank you for joining us. i'm tom hudson, have a great night. >> susie: and same to you, tom. thanks for watching, everyone. we hope to see you again tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you.