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Digital music seller Rhapsody is launching a $50 million marketing assault on Apple’s iTunes, offering songs online and via partners including Yahoo Inc and Verizon Wireless, Rhapsody said on Monday.

The songs will be sold in MP3 format, which means users of the Rhapsody service will be able to play them on iPods.

Before now Rhapsody, jointly owned by Real Networks Inc and Viacom Inc’s MTV Networks, had focused on a subscription service, allowing unlimited song streaming for $13 to $15 a month, rather than selling downloads.

But Rhapsody Vice President Neil Smith said the fact the service has not been compatible with Apple Inc’s top-selling iPod digital player has limited Rhapsody’s reach.

“We’re no longer competing with the iPod,” Smith said. “We’re embracing it.”

Rhapsody also will be the music store back-end to MTV’s music Web sites and iLike, one of the most widely used music applications on social networking site Facebook.

Rhapsody will be available on mobile phones via the Verizon Wireless VCAST Music service. Buyers of a song over-the-air directly from phones also will be able to download that song to their computer. Verizon Wireless is a joint venture of Verizon Communications Inc and Vodafone Group Plc.

Rhapsody executives describe the strategy as “Music Without Limits.” They said it would be backed by a marketing blitz worth up to $50 million in media space over the next year in part by leveraging co-parent MTV’s TV networks and Web sites. 

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Top fund executives meeting in Barcelona this week will debate how to attract assets from sovereign wealth investors and the merits of absolute return funds as they face up to a tough environment of lower inflows.

The Fund Forum International 2008, taking place from July 1-3, comes during the asset management industry’s toughest period since the bear market of 2000-2003, as the credit crisis that began last summer and choppy markets hit investor confidence.

“It’s not a great time for new business. People are sitting on their hands,” said Robert Lloyd George, chief executive of Lloyd George Management, which runs $12 billion in Asian and emerging market assets.

“There is a lot of … fear about where the UK economy is going.”

Fund firms profit during bull markets because investors tend to put more money into funds while overall assets, on which they earn fees, rise with markets.

During bear periods fund firms are often hit as markets fall and investors withdraw cash.

Retail fund sales have been poor in recent months. Sales of UK tax-advantaged Individual Savings Accounts (ISAs) in the traditionally busy ISA season were the worst on record this year, although retail fund sales rebounded in April.

Shares of listed fund firms have been battered. 

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The Bush administration has put a two-year stop to solar energy projects on federal lands in Arizona and other Western states while it studies their environmental impact.

The U.S. Bureau of Land Management and U.S. Department of Energy will study the impact of solar energy production and other facilities that could be developed on public lands in Arizona, New Mexico, Utah, Nevada, California, Colorado and Nevada.

There are 125 applications by solar energy companies to build facilities on public lands in those states.

The review will take two years worrying a solar energy sector looking to expand in the western U.S. including Arizona.

A number of U.S., German and Japanese solar energy companies want to locate or expand in Arizona and other Western states amid concerns about high energy costs and emissions.

Critics have questioned the Bush administration policies and links oil and gas companies saying the administration is too cozy with those energy sectors.

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Consumers and economists strongly disagree about which direction the economy is going.

Many economists are looking for at least a modest rebound in the second half of this year. That’s a key part of the reason the Federal Reserve is expected to end its nine-month course of rate cuts and keep rates steady Wednesday.

But 5,000 consumers surveyed earlier this month by The Conference Board, a well-respected private business research group, gave the bleakest six-month outlook for the economy ever in the nearly 42 year history of the survey.

Consumers expecting business conditions to deteriorate outnumbered those who expected an improvement by more than three-to-one. Those expecting more job losses topped those expecting an improvement in the labor market by more than four-to-one.

So who’s right? Even some economists think it’s not a good idea to ignore what consumers are saying.

"I would guess that the consumers are going to be right," said Keith Hembre, chief economist First American Funds.

He said the combination of record high energy prices, rising unemployment and job losses, a historically bad housing market and continued tightening of credit gives consumers every reason to expect the economy to get worse.

"Those four headwinds are not fading," Hembre said.

Lynn Franco, director of The Conference Board’s Consumer Research Center, suggested that with consumers feeling so grim, they may pull back on plans to make big-ticket purchases. That can slow the economy even further than current experts are forecasting.

In fact, the Conference Board survey showed consumers’ intentions to buy just about every type of big-ticket item, from cars to appliances, fell this month. The only thing consumers planned to buy more of was air conditioners. Fewer Americans also planned to take a vacation, according to the survey.

Hembre said consumer spending has stayed remarkably strong in the face of all the economic problems in the past year.

But Bernard Baumohl, executive director of The Economic Outlook Group, said that spending has been helped to this point by the more than $100 billion in tax rebate checks approved earlier this year as part of the federal government’s economic stimulus plan.

With most of those checks spent, a fall-off in spending is now a serious risk, especially with this level of worry by consumers.

"The outlook for spending later this year looks poor," Baumohl aid. "Households cannot escape the grim reality."

And economists agree that if consumer spending, which accounts for nearly three-quarters of the nation’s economic activity, actually starts to decline, it is likely to send the economy into a much more pronounced and longer recession than currently expected.

Another reason to believe the consumers’ outlook rather than the more optimistic view of many economists is that the consumer’s view is far more current, according to Bob Brusca of FAO Economics.

"He who forecasts last forecasts best," said Brusca. He said consumers are making their judgments about the economy because they have to buy gas and food every day and see what’s happening to home prices in their neighborhood. So they have a sense of the economy before it starts to show up in the official numbers weighed by economists.

"Consumers, not being economists, know what’s going on in the real world," he said. "That’s the most up to date forecast you can have. The economists made their forecasts a while ago." 

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The Louisville Regional Airport Authority on Wednesday approved a $96.6 million operating budget for fiscal 2009.

The budget, which goes into effect July 1, presumes that 1.9 million people will board planes at Louisville International Airport next year. That figure would be down from the anticipated 2 million expected in the current fiscal year, which ends June 30, airport authority executive director Skip Miller told the authority's board.

The budget provides for continuation of one noise-abatement program — the Minor Lane Heights relocation program, which began in 1988 — and the start of another one, the soundproofing of between 350 and 1,100 homes to the north of the airport that are affected by air traffic noise.

Taking a conservative approach

In his budget address to the board, Miller said the airport authority needs to continue to be conservative in its spending as airlines face unprecedented fuel costs and capacity contractions.

Miller said the International Air Transport Association, which in March predicted the industry would turn a combined profit of $4.5 billion in 2008, said this month that it expects the industry to suffer a combined loss of $2.3 billion for the year.

In the meantime, Miller said, the budget allows for an increase in marketing and air service development dollars to more aggressively recruit new air service and passengers.

"This is not the time to retrench," Miller told the board.

He added that Louisville International continues to fare well against regional competitors such as Lexington, Cincinnati, Nashville and Evansville, all of which experienced year-to-date decreases in passenger growth through April.

Louisville International's passenger growth was up 6.3 percent during the same period, Miller said.

Other highlights of the fiscal 2009 budget are:

• Funding capital projects at Louisville International and Bowman Field without incurring additional debt;
• Continued construction of Taxiway A and the relocation of the FedEx apron at Louisville International;
• Completion of an emergency operations center at Louisville International;
• Continuation of airport vehicle fleet modernization and purchase of new fire-fighting equipment for Louisville International;
• Repair of T-hangar roofs at Bowman Field.

About 64 percent of the budget will come from operating revenue generated at Louisville International. Another 26 percent will come from Federal Aviation Administration grants. Charges to passengers assessed on airline tickets will account for 5.8 percent, and 2.5 percent will come from interest income. The remaining 1.6 percent will come from the operation of Bowman Field.

The largest chunk of expenses — 35.3 percent — will come from debt service. Capital improvements and major maintenance at Louisville International will account for 32.3 percent of expenditures, and 25.9 percent will come from the operation of Louisville International.

The authority plans to put 2.8 percent of the $96.9 million budget into reserves. It will spend 2.1 percent on capital improvements and major maintenance at Bowman Field, and 1.7 percent will be spent to operate that airport.

Board meeting becomes contentious

An increase in the rent charged for hangars at Bowman Field, approved as a part of the 2009 budget, caused turbulence before the meeting ever got off the ground.

The budget included an approximately $40 per month increase in Bowman Field hangar rents, an increase that board members contend is necessary to fund replacement of the aging hangars at the general aviation airport.

The increase will raise rates to $300 from $260 per month for a standard hangar. Rates for oversized hangars will range from $382 to $555 per month.

The rate increase takes effect Feb. 1. It drew the ire of about 25 Bowman tenants who packed the authority's board room, hoping for a chance to voice their opinion.

Prior to the meeting, when board member Norm Risen learned that Bowman tenant representatives had only five minutes to plead their case to the board, he gave a passionate speech about his objection to the rate increase.

Risen told the board that the 24 percent increase in hangar rates was "criminal," considering the state of the hangars in question.

He also took Louisville Metro Mayor Jerry Abramson to task for not attending the board meeting, as he said Abramson had told him he would.

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Wall Street investment firms shouldn't become dependent on the Federal Reserve's emergency loans as a permanent source of funding, Assistant U.S. Treasury Secretary Anthony Ryan said.

“When they put these lending facilities in place back in March, they said they were going to be temporary,'' Ryan said today in a Bloomberg Television interview in London. “We don't want to encourage the dependence upon the Federal Reserve as a backstop.'' He added later in a speech that financial institutions should be “allowed to fail.''

The Treasury, Fed and other agencies are discussing ways to overhaul regulation of the U.S. financial system to improve risk management and disclosure. Ryan said it is up to the Fed to decide when to change the availability of the credit lending facility made available three months ago to the primary dealers of government bonds.

“What we really want to do is to strengthen market discipline and ensure that our financial institutions remain well capitalized,'' he said.

U.S. regulators are working out how to let investment banks retain access to the so-called Primary Dealer Credit Facility once the program is shut down in September, a government official said last week on condition of anonymity. The Treasury and the Securities and Exchange Commission are seeking to ensure the emergency measures are temporary.

Bear Stearns Rescue

The Fed introduced the facility March 16, the same day it agreed to lend against $30 billion of collateral from Bear Stearns Cos. to secure its takeover by JPMorgan Chase & Co. Firms can borrow at the same rate as commercial banks, which are already subject to capital rules and direct Fed oversight.

Fed officials have examiners inside investment banks to help assess the credit risk they are taking on loans. The SEC and the Fed are working on a memorandum of understanding that should formalize agreements on information sharing.

Regulators are seeking to alleviate the impact from the collapse of the subprime mortgage market and prevent a recurrence of a disruption that has led to global writedowns of $400 billion. Ryan said that while “we've made a lot of progress,'' improvement wouldn't come “in a straight line.''

In a speech after the interview, Ryan said that as regulators seek to improve market discipline, they must also allow for the possibility that some institutions will go bankrupt.

`Allowed to Fail'

“As we resolve the challenges of today, federal regulators must balance the need for market stability with concerns about the likelihood of increased moral hazard,'' he said to Euromoney's Global Borrowers Investors Forum, according to a text. “While firm failures are painful, as a policy matter, we must be in a place where firms are allowed to fail.''

The Treasury official said a breakdown in risk management from financial firms, credit agencies and investors all contributed to the turmoil that is now easing.

“As the fog enveloping our markets continues to dissipate, we must all recognize that the erosion of market discipline contributed greatly to the challenges we are addressing today,'' he said. “These breakdowns in the system will continue to occupy policy makers and market participants for years to come.''

There must be changes in credit-rating companies' practices, as well as in the way corporations use those ratings, he said

“The users of their services must rely less on, and appreciate more, the limitations of ratings products,'' he said.

Ryan, a former portfolio manager who took his current post in December 2006, declined to comment in the interview on whether he is a candidate to replace departing Fed Governor Frederic Mishkin.

Two officials familiar with the matter said last month the White House is considering nominating Ryan.

“Replacements to the Federal Reserve Board are up to the president and the Federal Reserve,'' he said. “I'm very busy with my responsibilities.''

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India's central bank Governor Yaga Venugopal Reddy said policy makers will take steps to contain consumer demand and tame inflation, stoking speculation of an increase in interest rates.

“The Reserve Bank of India will play its part in moderating and managing aggregate demand so that pressures on prices are not intensified,'' Reddy told reporters in the western Indian city of Pune today. “We are in the midst of intensive examination of options.''

Inflation in Asia's third-biggest economy has raced to 11.05 percent, the fastest since May 1995, even as the central bank raised interest rates to a six-year high. Finance Secretary D. Subbarao said on June 21 that monetary policy is the “first line of defense'' against spiraling prices.

“We expect the central bank to go ahead with aggressive rate hikes,'' said Shuchita Mehta, senior economist at Standard Chartered Bank in Mumbai. “Inflation expectations need to be anchored swiftly.''

Mehta expects the central bank to increase its key repurchase rate by 100 basis points to 9 percent in the year to March 31 and raise the cash reserve ratio, or the proportion of money that lenders must set aside as reserves, by 75 basis points to 9 percent.

“The RBI will continue to take determined and calibrated measures as and when warranted, with a focus on managing expectations and on enabling adjustments in the economy in response to the oil shock,'' Reddy said.

Bond Losses

Indian bonds pared losses as investors bet the central bank's policy will help slow inflation. The yield on India's 10- year bonds slowed to 8.64 percent after Reddy's comments from the day's high of 8.76 percent.

“We are confident that with a well-managed smooth adjustment of this episode, the inflation would be brought in alignment with our aim as expressed in the policy from time to time,'' Reddy said.

Reddy, who wants to contain inflation to around 5.5 percent by March 31, said he is optimistic about food prices declining because of bumper crops.

“From October-November we should see some containment in food prices,'' Indranil Pan, chief economist at Kotak Mahindra Bank Ltd., said in a television interview in Mumbai. “There can be comfort from food prices.''

Food grain production may rise to a record 227.3 million tons in the year ending June helped by bumper rice, wheat and lentils output, the agriculture ministry said in April. It may receive a further boost as rains in the four-month monsoon season that started last month are forecast to be adequate.

`Global Problem'

“Oil price increase is now a global problem, making inflation a problem for all countries,'' Reddy said. “Hence, our solutions to the problem will also be similar, but tailored to suit our conditions.''

Reddy has raised the repurchase rate eight times in the past 2 1/2 years and increased the cash reserve ratio seven times since December 2006 to slow money supply and cool inflation. He last raised the repurchase rate on June 11 and the cash reserve ratio on April 29.

China told lenders to set aside more money for a fifth time this year on June 7 to cool inflation that is close to a 12-year high. Banks must put aside a record 17.5 percent of deposits as reserves from June 25.

Faster Pace

Singapore's central bank has allowed its currency to strengthen at a faster pace against the U.S. dollar this year, saying the exchange rate remains its most effective tool to fight inflation.

Reddy said rising borrowing costs won't hurt India's record growth momentum. India's economy, which has grown an average 8.9 percent in the past four years, may grow as much as 8.5 percent in the year ending March 31.

“We on the basis of current information, don't come to a conclusion that managing this problem will necessarily involve sacrificing growth,'' Reddy said. “As of now, we don't see any reason to jump to a conclusion that growth will be adversely affected.''

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Wall Street thinks the Federal Reserve is almost certainly done cutting interest rates for the time being.

But as inflation fears rattle Wall Street, some economists are beginning to wonder if the Fed went too far by cutting rates as much as it did in such a short period of time.

The central bank is widely expected to leave its key federal funds rate at 2% after a two-day policy meeting next Tuesday and Wednesday. That would be the first time the Fed left rates steady following seven rate cuts since last September.

The fed funds rate is the central bank’s key lever to spur economic growth or slow it in an effort to keep prices in check. It is used as a benchmark to set rates paid by consumers on many types of loans, such as adjustable rate mortgages, home equity lines and credit cards, as well as for many types of business loans.

Typically, the Fed lowers rates when it is concerned about the economy slowing and raises rates when it is more worried about inflation.

With that in mind, some economists believe the Fed will begin raising rates as soon as this summer in order to combat rising commodities prices. Others believe that rate hikes are more likely in early 2009.

But few are expecting the Fed to cut rates again soon. In fact, some think that low interest rates are at least partly responsible for some of the serious drags on the U.S. economy today, such as soaring prices of food and gas and the weak dollar.

Rich Yamarone, director of economic research at Argus Research, said it is fair to blame the Fed "for a portion of the dollar’s weakness and higher commodity prices."

The problem, according to some economists, is that the Fed didn’t cut rates enough last year in response to the subprime mortgage meltdown and subsequently was forced to cut rates by a large amount this year.

The Fed lowered its fed funds rate by a half-point in September and followed that up with just quarter-point cuts in October and December.

"If policymakers had been more aggressive back in the fourth quarter, the financial system and the economy would not have gotten to this point, and the Fed would not have had to respond in such an aggressive way," said Mark Zandi, chief economist of Moody’s Economy.com.

The Fed slashed rates by three-quarters of a percentage point in an emergency meeting on January 21 and lowered them by another half-point at its regularly scheduled meeting nine days later.

That was followed by another three-quarters of a percentage point reduction in March and a quarter-point cut in April.

Lakshman Achuthan, managing director of the Economic Cycle Research Institute, said these big cuts opened the door to the inflationary pressures we’ve seen in the past few months. He also thinks that the Fed wouldn’t have needed to go as far as it did if it had not "dragged its feet" on rate cuts last year.

"You can not make up for being late by doing extra. The tonic of lower rates turned toxic," Achuthan said.

But there are other economists who believe that the economy is still fragile enough to justify the Fed cutting rates this deeply.

"I think the worst of the recession is yet to come. So I think the Fed is right to bring rates down this far," said David Wyss, chief economist with Standard & Poor’s.

Other defenders of Fed policy believe the economic slowdown will eventually end up reducing demand for oil and other commodities. That would lead to price declines.

In addition, some economists think that factors out of the Fed’s control are the real reasons for the rise in oil and food prices.

"If the Fed had cut rates to 2.5% instead of 2%, it wouldn’t have made any difference for oil," said Ethan Harris, chief economist with Lehman Brothers.

He added that the boom in global demand for oil combined with the fact that many investors are chasing momentum in the commodities markets are the real culprits behind oil’s surge, not the Fed.  

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Bank of England policy makers defeated David Blanchflower's call for an interest-rate cut this month as the threat of inflation intensified, prompting some of them to consider an increase.

The Monetary Policy Committee, led by Governor Mervyn King, voted 8-1 to keep the benchmark rate at 5 percent, minutes of the June 5 decision showed. Blanchflower voted for a quarter-point reduction, arguing that there was a small, but growing risk of a “very negative outcome.''

Inflation reached 3.3 percent in May, prompting King to write a letter of explanation to the government this week for only the second time in more than a decade. He said policy makers are “concerned'' about increases in consumer prices, inflation may exceed 4 percent this year, and the future path of interest rates is “uncertain.''

“Most members concluded that developments this month had meant that the risks to inflation in the medium term had moved further to the upside,'' the minutes said. “For some members the news had been sufficient to consider whether an immediate rise in bank rate was warranted.''

At 5 percent, the Bank of England's benchmark rate is still the highest rate in the Group of Seven industrialized nations. The U.K. central bank last lowered the main rate in April, bringing the total number of rate cuts to three since December.

The pound stayed lower against the dollar and the euro after the report. The U.K. currency traded at $1.9522 at 10:22 a.m. in London, from $1.9568 yesterday. It was at 79.37 pence per euro.

`On Hold'

“There's a sense that rates are more likely to be on hold over coming months than anything else,'' said Matthew Sharratt, an economist at Bank of America Corp. in London. “If the Bank of England is forced to move before the end of the year, that move is going to be a hike.''

The policy makers who considered a rate increase decided against one, because it wasn't required “urgently'' to keep inflation expectations in check and may appear to exaggerate the panel's concerns about prices.

Britons anticipate inflation will reach 4.3 percent in the next year, the highest reading since at least 1999, the central bank said last week, citing a May survey by GfK NOP.

Crude oil prices surged to a record above $139 a barrel On June 16 and corn climbed to a record near $8 a bushel. Higher commodity prices pose a “serious challenge'' to the world economy, officials from the Group of Eight nations said June 15. U.K. food prices increased 8.7 percent from a year earlier, the statistics office said yesterday.

Governor's Letter

King wrote his letter to Chancellor of the Exchequer Alistair Darling because inflation strayed above 3 percent to the highest since at least 1997. It is only the second a governor has written since the central bank took control of monetary policy 11 years ago. The bank published the letter yesterday.

British law requires the central bank governor to write a letter of explanation if inflation strays more than 1 percentage point from the 2 percent target. King wrote the first letter in April 2007 after inflation quickened to 3.1 percent.

Falling house prices and higher credit costs are curbing consumer spending, and denting Britons' confidence in the economy. King said it's “quite possible we will get an odd quarter or two of negative growth'' as he presented the bank's forecasts last month.

Blanchflower argued that evidence of slowing growth “more than outweighed'' the news about short-term inflation. He repeated his call for an interest-rate cut, saying that the impact of declining house prices on consumer spending was likely to be more than the bank predicted.

“There's a very real risk that the U.K. economy could fall into a recession, and that would paralyze the financial markets in the middle of a G-7 credit crunch that is not going away,'' Lena Komileva, an economist at Tullett Prebon in London, said in an interview on Bloomberg Television.

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Rates on 30-year fixed mortgages have surged nearly a quarter percentage point to an 8-month high on growing concerns about inflation, mortgage backer Freddie Mac said Thursday.

Freddie Mac (FRE, Fortune 500) said 30-year fixed-rate mortgages averaged 6.32% with an average of 0.7 point in the week ending Thursday, up from 6.09% last week. Last year at this time, the 30-year loan averaged 6.74%.

The last time the 30-year fixed rate mortgage was higher was the week ended Oct. 25, when it averaged 6.33%.

"Mortgage rates jumped this week after a number of Federal Reserve officials, most notably Chairman (Ben) Bernanke and Vice Chair (Donald) Kohn, expressed concern over a threat of inflation," said Frank Nothaft, Freddie Mac vice president and chief economist, in a statement.

"This led some market participants to believe that the Fed will raise rates more aggressively over the year than previously thought," Nothaft added.

The 15-year fixed-rate mortgage this week averaged 5.93% with an average 0.6 point, up from last week when it averaged 5.65%. A year ago at this time, the 15-year fixed rate mortgage averaged 6.43%.

The last time the 15-year fixed-rate mortgage was higher was the week ended Oct. 25, when it averaged 5.99%.

"Inflation concerns are still continuing, so that would suggest some upward pressure on interest rates," said Keith Gumbinger, Vice President of HSHAssociates.com, an online publisher of consumer loan information.

Five-year adjustable-rate mortgages (ARMs) averaged 5.70% this week, with an average 0.7 point, up from last week when it averaged 5.51%. A year ago, the 5-year ARM averaged 6.37%.

One-year ARMs averaged 5.09% this week with an average 0.6 point, up from last week when it was 5.06%. At this time last year, the 1-year ARM averaged 5.75%.

Other news in the housing market has been more mixed. The number of homes under contract to be sold rose 6.3% in April, according to National Association of Realtors, showing that buyers were out shopping for bargains.

As interest rates move higher, buyers leave the market, and the lack of demand pushes home prices lower, according to Gumbinger. "The higher interest rates put renewed pressure on home prices," he said.

Single-family home prices dropped 7.7% in the first quarter, according to the National Association of Realtors. The year-over-year drop was the largest decline since the association began reporting on home prices in 1982.

"Serious delinquencies (loans overdue 90 days or more or in foreclosure) for both prime and subprime conventional mortgages nearly doubled between first quarter of 2007 and 2008, according to the Mortgage Bankers Association," added Nothaft. 

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