European Central Bank President Jean- Claude Trichet said economic growth will be “particularly weak'' through the third quarter, suggesting policy makers are wary of raising interest rates again to curb inflation.
While the ECB's decision to raise borrowing costs last month was justified by the inflation threat, risks to growth “are materializing,'' Trichet told reporters in Frankfurt today after keeping the benchmark rate at 4.25 percent. “Overall, downside risks prevail.''
The euro dropped more than a cent and bonds rose as investors pared bets on higher ECB interest rates. The bank is concerned that the fastest inflation in 16 years is helping unions push through demands for higher wages at companies such as Deutsche Lufthansa AG, fueling further price increases. At the same time, record energy costs and the stronger euro are strangling growth. The Bank of England today also kept rates unchanged.
Euro-region economic confidence dropped the most since the Sept. 11 terrorist attacks in July and Europe's manufacturing and service industries contracted for a second month.
“The ECB is acknowledging the economic slowdown,'' said Matthew Sharratt, an economist at Bank of America in London. “They're still focused on high inflation but the best way to avoid a policy mistake would be to keep interest rates on hold.''
The euro fell as low as $1.5335, a seven-week low. The yield on the 10-year German government bond fell 9 basis points to 4.25 percent, the lowest since May 23. Bond yields move inversely to prices.
Cuts By Christmas?
Eonia swap contracts, a widely used market gauge of interest- rate expectations, have started to price in rate cuts. The yield on the April contract dropped 15 basis points to 4.16 percent after Trichet's remarks.
“If he was trying to give a neutral, balanced `don't price in rate cuts' speech, then I think he really screwed it up,'' said James Nixon, an economist at Societe Generale SA in London. “The market will be looking for cuts as early as Christmas at this rate.''
Oil prices have retreated 18 percent since reaching a record $147.27 a barrel on July 11 and money-supply growth, which the ECB uses as an indicator of future inflation, slowed more than economists forecast in June.
“Slowly but surely, the arguments for another interest-rate hike are running out,'' said David Milleker, chief economist at Union Investment GmbH in Frankfurt.
`No Bias'
Trichet said the ECB has “no bias'' on interest rates. He removed a reference from his introductory statement to “moderate, ongoing growth,'' and said the bank will have a better idea of the economic outlook when it gets new staff forecasts in September.
In June, ECB staff projected growth would slow to about 1.8 percent this year and 1.5 percent in 2009. The economy expanded 2.7 percent in 2007.
Credit Suisse Group today cut its forecast for euro-area growth to 1.3 percent in 2008 and 0.8 percent in 2009 from 1.8 percent and 1 percent respectively.
Societe Generale economists estimate gross domestic product shrank 0.5 percent in the second quarter after growing 0.7 percent in the first. By contrast, the U.S. economy expanded 0.5 percent in the three months through June. The Federal Reserve this week left its key rate at 2 percent.
Still, inflation in the 15-nation euro region accelerated to 4.1 percent in July as oil prices soared to a record. The ECB aims to keep the rate just below 2 percent, something it has failed to do every year since 1999.
`Strong Concern'
“The information that has become available since our previous meeting has further underpinned our decision to increase rates in July,'' Trichet said. The ECB will “always do what is needed to deliver price stability.''
The bank raised its benchmark rate by a quarter point on July 3, citing its concern that a wage-price spiral may develop.
Negotiated wages in Germany, Europe's largest economy jumped 3.5 percent in the year through April, the biggest gain in 12 years. In Italy, wage inflation accelerated to 3.6 percent in June. Lufthansa, Europe's second-largest airline, last week agreed to a 5.1 percent raise for ground workers and some cabin crew.
Inflation risks “remain clearly on the upside and have increased over the past few months,'' Trichet said. “There is very strong concern that price and wage-setting behavior could add to inflationary pressure.''
ECB policy makers are “very worried about the risk of a wage-price spiral,'' said Martin van Vliet, an economist at ING Group in Amsterdam. “They've left the door open for a rate hike this year, but I think the chances of that have diminished to below 50 percent.''
Factory orders in the U.S. increased more than forecast in June, propelled by gains in petroleum and chemicals that reflected soaring prices.
The 1.7 percent gain in bookings, the biggest this year, followed a revised 0.9 percent increase in May that was larger than previously estimated, the Commerce Department said today in Washington.
The jump in raw-material costs is hurting profits, causing businesses to limit spending on new equipment. Demand from overseas is helping factories withstand the slowdowns in corporate and consumer spending, giving the economy a lift as the effects of the tax rebates wane.
“These numbers are somewhat inflated by prices, maybe even outside of petroleum,'' said David Sloan, senior economist at 4Cast Inc. in New York. “The underlying picture is fairly flat'' for manufacturing.
Economists forecast factory orders for June would rise 0.7 percent after a previously reported 0.6 percent gain for May, according to the median of 56 forecasts in a Bloomberg News survey. Estimates ranged from a 0.2 percent drop to an increase of 2 percent.
The biggest increase in prices in almost three years eroded consumers' buying power in June, diminishing the boost from the government's tax rebates, a separate report from Commerce also showed. Consumer inflation climbed 0.8 percent, the most since September 2005, the Commerce Department said today in Washington. Spending increased 0.6 percent after a 0.8 percent gain in May.
Ex-Transportation
Excluding demand for transportation equipment, which tends to be volatile, factory orders increased 2.3 percent, the most since April.
Bookings for all durable goods climbed 0.8 percent in June. This figure makes up just over half of the total factory orders. Non-durable goods orders, including those for food, petroleum and chemicals, jumped 2.5 percent after a 1.7 percent gain in May. Demand at petroleum refineries increased 5.6 percent and rose 11 percent at makers of agricultural chemicals such as pesticides and fertilizers.
Factory inventories increased 1 percent, also led by petroleum products, and manufacturers had enough goods on hand to last 1.22 months at the current sales pace, down from 1.23 months in May.
A report last week showed manufacturing stagnated in July. The Institute for Supply Management's factory index fell to 50 from 50.2 in June. Fifty is the dividing line between expansion and contraction. The group's factory orders index slumped to the lowest level in almost seven years and the prices paid measure remained near a 30-year high.
`Significant Recession'
“Were it not for exports at this point, I think I would take the position that manufacturing overall would be in a significant recession,'' Norbert Ore, chairman of the ISM survey, said in a conference call. “But the export market has held up quite well for us.''
The trade deficit narrowed to a $395.2 billion annual pace in the second quarter, the smallest gap in seven years, the Commerce Department said on July 31. Without trade, the economy would have contracted at a 0.5 percent pace from April through June, instead of expanding at a 1.9 percent rate.
Bookings for capital goods excluding defense and aircraft, a proxy for future business investment, rose 1.2 percent in June, today's report showed. Shipments of such goods, which the government uses to calculate gross domestic product, increased 0.7 percent.
Slowing Sales
Akamai Technologies Inc., the largest supplier of software and services to speed up the delivery of Web pages, cut its profit forecast July 30 because of slowing sales. Chief Executive Officer Paul Sagan said the economy may be limiting clients' investments.
Private non-residential investment rose at a 2.3 percent annual rate in the second quarter, the slowest pace since the last three months of 2006, the government said last week. Spending on equipment and software fell at a 3.4 percent pace.
The Federal Reserve said on July 23 that “many'' of its 12 districts had declining manufacturing activity in June and July “although demand for exports remained generally high.'' The Fed also said the economy “slowed somewhat'' and that all of its bank districts reported “elevated or increasing'' price pressures.
The Fed is scheduled to next vote on the direction of its benchmark overnight lending rate between banks at the conclusion of its Federal Open Market Committee meeting Aug. 5. Traders are projecting the central bank will keep the rate at 2 percent.
Reports suggest automobile manufacturing will continue to suffer. U.S. auto sales fell to a seasonally adjusted 15-year low of 12.5 million at an annual rate in July, according to Bloomberg data.
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.
Bank repossessions more than doubled in May and foreclosure filings rose 48 percent from a year earlier as previously foreclosed properties dragged down housing prices, RealtyTrac Inc. said in a report today.
One in every 483 U.S. homeowners lost their houses to foreclosure or received either a default warning or notice that their home would go up for sale at auction, RealtyTrac said. That was the highest rate since the Irvine, California-based company began reporting in January 2005 and the 29th consecutive month of year-over-year increases. Nevada, California and Arizona posted the highest rates in the U.S. and New Jersey entered the Top 10, according to RealtyTrac.
“It's definitely a different kind of market than what we got used to a couple years ago,'' said Devin Reiss, owner of Realty 500 Reiss Corp. in Las Vegas. “We used to sell homes in a day. Now 50 percent of our sales are foreclosures.''
Foreclosures add to inventory and crowd out regular sales, Michelle Meyer and Ethan Harris, economists at Lehman Brothers Holdings Inc. in New York, wrote in a report yesterday. Foreclosures will account for 30 percent of national home sales this year as 1.2 million foreclosed single-family homes will eventually enter the market, they said. They estimate that foreclosed properties, which typically sell for about 20 percent less than other homes, will depress home prices by 6 percent.
Feedback Loop
“The risk is that an adverse feedback loop will develop, in which problems in the housing market undercut the economy, causing even more stress in the housing and mortgage markets,'' Meyer and Harris wrote.
A homeowner usually receives a notice of default after falling more than 90 days behind on mortgage payments. If the borrower still doesn't pay what's owed, the property is sold to the highest bidder at an auction, typically held at a county courthouse. If bids don't reach a set amount, the lender takes ownership. Such houses are referred to as REO, or “real estate- owned.''
Lenders took possession of 73,794 houses in May, more than doubling the 28,548 REOs in May 2007, RealtyTrac said. That pushed total REOs to more than 700,000, RealtyTrac said.
“Right now, lenders are afraid to lend and buyers are afraid they'll be under water in a year, so unless something dramatic happens we're going to continue to see the trend go in the wrong direction,'' said Rick Sharga, RealtyTrac's vice president of marketing.
Federal Legislation
Legislation that would allow the federal government to guarantee up to $300 billion in refinanced mortgages passed the House of Representatives and awaits debate in the Senate, which is scheduled to recess before the July 4 holiday.
Government help would make it easier for homebuyers to get loans and would ease the number of foreclosures, said John Gall, president of the Arizona Association of Realtors and owner of Arizona Land Quest LLC in Kingman, Arizona.
“Resolving credit issues is going to require cooperation between Wall Street and Washington to provide a secure platform for lenders to loosen up their criteria,'' Gall said. “It would absolutely help here in Arizona.''
Arizona's foreclosure rate — one in every 201 households received a filing in May — was a 119 percent increase compared with May 2007 and ranked third in the U.S., RealtyTrac said.
Only Nevada, with one in every 118 households, and California, with one in every 183, had higher filing rates in May, the company said.
New Jersey
One in every 467 New Jersey households received a foreclosure filing in May, making it No. 10 on RealtyTrac's list of states. That represented an 89 percent increase from a year ago and a 44 percent increase from April, RealtyTrac said.
The number of national foreclosure filings grew 7 percent from April, according to RealtyTrac.
The nationwide rate of default warnings in May increased 1 percent from April and the number of auction notices fell 3 percent, the company said.
Metropolitan areas in California and Florida accounted for nine out of the top 10 metro foreclosure rates for the second month in a row, RealtyTrac said. Seven California metro areas were in the top 10: Stockton, Merced, Modesto, Riverside-San Bernardino, Vallejo-Fairfield, Bakersfield and Sacramento.
Stockton's rate, one in every 75 households, was more than six times the national average, the company said.
Deluged
“One of the big problems is the banks have been deluged and are way behind in actually doing the foreclosures,'' said Alan Nevin, chief economist with the California Building Industry Association in San Diego. Nevin said he's forecasting lower foreclosure rates in California starting in the last three months of the year.
The Cape Coral-Fort Myers area, on Florida's Gulf Coast, had the second-highest metro foreclosure rate in May, with one in every 79 households. The other Florida area in the top 10 was Port St. Lucie-Fort Pierce, on the Atlantic coast, at No. 10.
The only city outside Florida and California in the top 10 was Las Vegas.
RealtyTrac said it has a database of more than 1.5 million properties and monitors foreclosure filings, including default notices, auction sale notices and bank seizures.
Many U.S. small business owners say soaring fuel costs are eating their profits at a time when the economy is already weak, making them more cautious about expanding or hiring.
“In theory we could pass on extra costs with fuel surcharges,” said Vince Puente, part owner of Southwest Office Systems Inc , Mittelnight has his crews work longer days on-site to reduce commuting. But his weekly fuel bill has still risen to $1,000 from $350 in the past year.
Mittelnight said he is now reluctant to hire technicians who live too far away. His technicians drive company trucks home and are on-call for servicing jobs.
“I can’t have people driving too far to service clients because then they’re commuting on my fuel bill,” he said.
Mary Galvan owns GLM DFW Inc, a Dallas company with about 50 employees and annual sales of $20 million that arranges recycling services for large firms nationwide.
She says some prospective employees have demanded higher salaries to offset the cost of driving to work.
“But it’s too hard to justify paying them more than employees who have been here for years,” she said.
Galvan said any investment, from paper to office furniture, is now weighed more carefully. She employs only people she knows can double or triple up by taking on different jobs.
Billionaire investor George Soros said the “acute phase'' of the global credit crisis is over, and the fallout will lead to recessions in the U.K. and the U.S.
“Financial institutions have been severely damaged and we are currently in a situation that will probably, I think almost inevitably, result in a recession certainly in the United States and most likely in England also,'' he said in an interview with BBC Radio 4 today.
Policy makers in the U.S. and Britain have cut interest rates to protect their economies from falling house prices, and banking losses from the subprime mortgage collapse that now total $379 billion. The Bank of England said last month that the credit crisis may abate, and Governor Mervyn King says the economy may face “an odd quarter or two'' of contraction.
“We've had a pretty serious crunch, but the acute phase is behind us,'' Soros said. “Now we have to feel the effects. In the case of the U.K., you've had a housing bubble that in terms of price increases has been greater than in the U.S.''
U.K. house prices had their first annual decline since 1996 in April after tripling in the past decade, reports by HBOS Plc and Nationwide Building Society have showed.
Home prices in 20 U.S. metropolitan areas fell in February by the most on record. The S&P/Case-Shiller home-price index dropped 12.7 percent from a year earlier, the most since the figures were first published in 2001. The gauge has fallen every month since January 2007.
Bank Collapses
Soaring interbank borrowing costs led to the collapse of Bear Stearns & Cos. earlier this year and sparked a run on Newcastle, England-based mortgage lender Northern Rock Plc in September.
European Central Bank President Jean-Claude Trichet refrained from saying that the worst of the credit crisis is over, in an interview with the BBC Radio 4, broadcast yesterday. He said the world faces “an ongoing, very serious market correction.''
“We're entering a period of much greater instability because we've got the threat of recession and at the same time the threat of inflation,'' Soros said.
The Bank of England signaled last week that it has little scope to lower borrowing costs further to counter slowing economic growth because inflation will exceed the government's 3 percent upper limit for “several quarters.''
The U.K. central bank has cut the benchmark rate three times since December to the current 5 percent to ward off the first recession since 1991. The Federal Reserve has reduced its benchmark rate seven times since September to 2 percent.
Soros told the BBC in a separate interview that the U.K. central bank's actions were “like a Greek tragedy'' because it couldn't lower its rate until too late. He urged central bankers worldwide to focus on fighting what he called asset bubbles, such as the boom in U.K. house prices, rather than bailing out the financial industry whenever it got into trouble.
China ordered banks to set aside more deposits as reserves for the fourth time this year after inflation accelerated, approaching the fastest pace since 1996.
Banks must park a record 16.5 percent of deposits with the central bank, up from 16 percent, the People's Bank of China said today on its Web site. Consumer prices rose 8.5 percent in April from a year earlier driven by food costs, the statistics bureau said today.
The increase will freeze about 208 billion yuan ($30 billion) in the banking system, helping to cool the world's fastest-growing major economy by restraining lending. A 7.5 percentage point increase in the requirement since the start of last year has failed to stop lending growth that's helped Chinese banks to record profits.
“The central bank needs to do more and do it sooner rather than later,'' said Kevin Lai, senior economist at Daiwa Institute of Research in Hong Kong. “The reserve requirement is not sufficient to curb inflation.''
The ratio becomes effective May 20.
Inflation quickened from 8.3 percent in March and topped the 8.2 percent median estimate of 22 economists surveyed by Bloomberg News. It's the fastest in the world's 10 biggest economies and compares with 5.04 percent in Brazil and 4 percent in the U.S.
The yuan closed at 6.9882 versus the dollar at 5:30 p.m. in Shanghai, from 6.9833 before the inflation data was released. The CSI 300 Index of stocks gained 0.7 percent.
Banks' Profits
Central banks around the world are grappling with faster inflation and slowing growth. In Asia, Bank Indonesia on May 6 raised interest rates for the first time in more than two years and the Reserve Bank of India last month twice ordered lenders to set aside more reserves.
China's economy expanded 10.6 percent in the first quarter from a year earlier, down from 11.9 percent pace for all of 2007, as exports cooled. China's 12 publicly traded lenders posted an average 118 percent jump in profit.
Consumer prices rose 8.7 percent in February, the biggest gain since May 1996.
“If we don't handle financial risks well, this could cause turbulence in the overall economy and undermine social and political stability,'' Vice Premier Wang Qishan said May 9.
Interest Rates
China will raise the bank reserve ratio to 19 percent by year's end and “it is doubtful whether this alone will be enough to temper inflation expectations,'' said Mark Williams, an economist at Capital Economics Ltd. in London. “A hike to interest rates would send a stronger message and must now be considered likely.''
Central bank Governor Zhou Xiaochuan said May 5 that there's a possibility rates will rise. The central bank has kept the benchmark one-year lending rate unchanged at a nine-year high of 7.47 percent this year after six increases in 2007. The government has also slowed the pace of yuan gains since April.
The government is concerned that rates higher than in the U.S. and the strengthening yuan are attracting overseas money to an economy already awash with trade cash — threatening to fuel inflation.
China's foreign-exchange reserves, the world's largest, surged 40 percent to $1.68 trillion at the end of March from a year earlier. Foreign direct investment climbed 59 percent in the first four months from a year earlier to $35 billion, the government said today.
Currency Gains
China's currency has climbed about 0.4 percent versus the dollar since March 31 after a 4.2 increase in the first quarter that was the biggest jump since the end of a fixed exchange rate in 2005.
“There is a need to combine exchange rate policy with other monetary policies, including interest rates, to reduce the trade surplus and contain inflationary pressures,'' said Ha Jiming, chief Asia economist at China International Capital Corp. in Beijing.
Food costs, which increased 22 percent in April from a year earlier, are driving this year's surge in inflation. Meat prices climbed 48 percent last month.
Grain “may lead another wave of food price inflation'' as meat shortages ease in the second half of this year, said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. Food prices remain the government's biggest challenge and inflation's spread into other areas “is still limited,'' Sun said.
Wheat Prices
Wheat has climbed 63 percent in the past year and rice, a staple for half the world, has more than doubled. United Nations Secretary-General Ban Ki-moon said April 29 that basic foods were becoming beyond the reach of the world's poorest people.
Soaring inflation helped trigger the Tiananmen Square protests that were crushed by the army in June 1989.
The government is targeting inflation of 4.8 percent this year, the same as the actual rate in 2007. Non-food prices rose 1.8 percent in April, an unchanged pace.
“While we expect the impact of food prices will start to mitigate late this year, we do now start to see some filtering- through of raw material prices as well,'' said Louis Kuijs, senior China economist with the World Bank in Beijing
European retail sales dropped 1.6 percent in March from a year earlier, the most since at least 1995 and twice as much as economists forecast, as soaring fuel and food costs sapped consumer spending.
Retail sales in the euro area declined 0.4 percent on the month, the European Union's statistics office in Luxembourg said today. Economists had forecast a 0.7 percent annual decline, according to the median of 20 estimates in a Bloomberg News survey.
The European Central Bank governing council, which meets tomorrow to set interest rates, has refused to follow its counterparts in the U.S. and the U.K. in cutting interest rates, arguing that domestic demand will help sustain economic growth. Now, the surge in food and crude-oil prices, which has focused policy makers' attention on inflation, is also undermining consumer sentiment.
“This is pretty grim,'' said Ken Wattret, senior economist at BNP Paribas in London. “The big picture has been very weak for some time and up until this point the ECB has been in denial. They keep on cheerleading the improvement in consumption, but it simply hasn't happened.''
The euro extended losses following the report, falling as much as 0.5 percent to $1.5451. It traded at $1.5467 at 11:42 a.m. Brussels time.
`Many Challenges'
Retailers have “never before faced so many challenges,'' Jose Luis Duran, chairman of Carrefour SA, the world's second- biggest retailer, said April 9. “Inflation is a big issue.''
The increase in costs is outstripping the gain in prices charged by retailers, he said.
Ikea, the largest home-furnishings seller, is cutting back expansion plans as economic growth slows and prices increase, Chief Executive Officer Anders Dahlvig said the same day.
Even unemployment at a record low has failed to spur spending. Confidence among households in France dropped to a record low last month, while a European Commission index of sentiment in the euro area also fell in April.
Retail sales in France declined 0.8 percent in March from the year-earlier month, while sales in Germany, Europe's biggest economy, dropped 1.1 percent, today's report showed.
The federal government, eager to boost the flagging economy, will start distributing special stimulus payments Monday - four days earlier than expected.
"Beginning Monday, the effects of the stimulus will begin to reach households," President Bush said Friday. "This money is going to help Americans offset the high prices we’re seeing at the gas pump and at the grocery store."
The department announced the early arrival of the payments Thursday after saying last month that it would begin sending out the money on May 2.
As of next week, 800,000 tax filers daily will begin to have their checks directly deposited Monday, Tuesday and Wednesday. No checks will be distributed Thursday, and 5 million payments will be made Friday.
The payments will go out ahead of schedule because of a new computer program that updates records daily - faster than an older program that updates weekly, according to Andrew DeSouza, a Treasury spokesman.
Overall, the Treasury will distribute more than $110 billion to 130 million taxpayers by July and hopes to get the first $50 billion out by the end of May, DeSouza said.
The checks are the centerpiece of an economic stimulus program signed into law by President Bush in February. The aim is to boost consumer spending and help mitigate problems caused by the slowing economy.
Checks are being distributed to people who file 2007 tax returns. Those who opt for direct deposit with the Internal Revenue Service will start getting payments before those who use the mail.
The program calls for rebates of up to $600 for single filers making less than $75,000. Couples making less than $150,000 would receive rebates of up to $1,200. In addition, parents would receive $300 rebates per child. Filers who do not owe income taxes but have at least $3,000 in income would get a $300 payment.
Payments to taxpayers slated to get paper checks will start to go out May 9 - one week earlier than originally planned.
The order in which tax filers will receive their payments will be based on the last two digits of their Social Security numbers.
Issue #1 - America’s Money: All this week at noon ET, CNN explains how the weakening economy affects you. Full coverage.
Under the government’s economic stimulus plan, 130 million people will receive tax rebate checks for $300 and up, starting Monday. What do you plan to do with your check? How do you think the stimulus plan will affect the economy? Send us your photos and videos, or email us and tell us what you think.
European Central Bank President Jean- Claude Trichet said the bank must set interest rates with the sole goal of maintaining price stability, rebuffing calls from the French and Italian governments for it to take growth into account.
“It's crucial that the Governing Council sets the appropriate monetary policy stance on the basis of no other considerations than the delivery of price stability in the medium term,'' Trichet said at a conference in Vienna today. The bank's current policy stance “will contribute to achieving our objective,'' he said.
The ECB has held its key rate at a six-year high of 4 percent to contain inflation, which accelerated to 3.6 percent last month, the fastest pace in 16 years. That's helped drive the euro to a record against the dollar, threatening to deepen Europe's economic slowdown and leading to calls from some governments for the ECB to take more account of growth.
French Finance Minister Christine Lagarde said yesterday that the gap between the ECB's benchmark rate and that of the U.S. Federal Reserve is a “bit too big'' and that a “more flexible'' ECB could help narrow the difference. The Fed's main rate is now at 2.25 percent.
Berlusconi Wades In
Italian Prime Minister-elect Silvio Berlusconi said April 16 that the ECB should consider more than just targeting low inflation when setting monetary policy. “The ECB must have broader functions, with a majority deciding, to go beyond controlling inflation,'' he said.
Trichet repeated that he's concerned about the euro's gains, which are undermining the outlook for European exports. “There have been at times sharp fluctuations between major floating currencies and we're concerned about their possible implications for economic and financial stability,'' he said.
Still, speaking at the same conference as Trichet, ECB council member Klaus Liebscher said the bank has to “closely monitor'' all developments and act preemptively if necessary to prevent surging oil and food prices from feeding into wages.
Economists at Deutsche Bank AG, HSBC Securities and JPMorgan Chase & Co. last week bet accelerating inflation will force the ECB to keep interest rates at 4 percent for longer than previously anticipated. The economists said the bank will start cutting interest rates in the final quarter of this year, having previously anticipated a reduction by the end of the third quarter.
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