How does the Fed's decision today affect the so-called real economy?
>> how does the fed’s decision today affect the so-called real economy. that is, consumers and businesses will have to pay more when they borrow. and what will the fed do next? michael mckee spoke with bank one’s diane swonk shortly after the decision was released this afternoon.
>> the real issue here is that the federal reserve is raising rates to be more reflective and more in line with the economy we have as it slows. i have to admit i myself thought there was a chance the fed could do nothing today. i think they decided to do no news is good news and do exactly as expected even down to the measured statement but i think it’s important here that measured doesn’t necessarily mean every single moth and i think we’ll see a real opportunity for the federal reserve to clarify their words at the jackson hole, wyoming, meetings, which have taken on new importance, coming up august 26, now that chairman greenspan will be speaking at those meetings and that speech is closely watched anyway and more closely watched this year given everything has a magnified issue with regard to the economy leading up to the last weeks into the elections. of course, also having the jackson hole, wyoming meetings around the republican convention is an issue, as well. so the economy will be closely watched and talked about and how the fed intends to conduct policy will have to be clarified, i think, at those meetings.
>> we see the consumer price index rise and get record highs in oil prices. does the statement today tell you anything about how worried the fed is about inflation? does the fact that they raised rates today although there was discussion about not doing so telling you that they are concerned about what’s happening?
>> i think that’s very much an issue. i think the fact that they acknowledged it, although they thought price pressures were transitory, they still had to raise rates. they are normalizing rates. there’s a different situation where they’re trying to bring rates up to a less accommodative stance. they also pointed out that monetary policy is accommodative and they’re not trying to squelch growth. they think that oil prices are tronsatory but they thought that for a long time. i certainly don’t believe there’s a lot of fundamentals holding prices at current highs but a lot of emotion expressed earlier in terms of terrorist threats to venezuela, geopolitical situations, russia, what’s going on with yukos. all of that is feeding into higher oil prices but supply and inventories are picking up and more is coming online at higher prices, more supply is coming online and it is affecting the growth in the u.s. economy so you would expect oil prices to eventually fall but who knows when, who knows when all the emotions will be cleared out of the economy? my fear is we won’t see the real decline in oil prices we’d like to see until after the elections and that is―that’s not good news, certainly, for incumbents, also not good news for the u.s. economy because the longer the oil prices stick around, the more we have to pay in terms of the real costs―higher gas prices at the pump. that’s really the bigger issue here than interest rates. oil prices are the story all over the board.
>> a minute left. oil prices are affecting the economy but what about the fed’s interest rates? is this going to cause anybody reason to pause in terms of the kind of investments they’ll make, either consumers or businesses?%
>> no. i think as far as interest rates go, in fact, long-term interest rates have come down in recent weeks. we’ve seen other interest rates disconnect from monetary policy because in fact interest rates, the fed policy, it was well expected. so now they’re reacting to other factors, as well. anyone attached to a prime rate loan, of course, home equity loan that moves with the prime, will see a bit of increase. in terms of standard vehicle loans, every quarter point is worth $500 over a course of a five-year loan. that’s pretty insignificant on a monthly basis and won’t make or break spending decisions. at the moment, a quarter point is not a big deal and i think that’s one of the relationships the fed felt comfortable moving because if they have to move further later on down the road, at least they have a headstart on it where if they don’t have to move, they can step back and rates are still accommodative and low.
>> she has spoken. aside from the fed, we got fresh data on the economy today. worker productivity slowed in the quarter ending in june to 2.9%. that’s the lowest number we’ve seen in at least five quarters there, in fact, almost two years. smaller gaining is the companies have already gotten most of the efficiency they can out of their employees. meanwhile, labor costs were up about 2%. that, at the same time, the fast fastest in two years. slowdown in productivity could lead to increasing labor costs and prices. optimism among small businesses rose last month, expectations for the economy improved and more small business owners say they plan to increase spending and hiring. the national federation of independent business says its small business optimism index rose nearly three points to 105.9, only four points below the 18-year high it hit in december. the group’s chief economist says “capital spending remains strong and plans for future expansion also remain strong.” 35% of the small businesses surveyed expect an increase in inflation-adjusted sales, up from 26% that thought that way in june. 25% say it’s a good time to expand and that also 4% up from the prior month. former tyco c.e.o. dennis kozlowski and co-defend, mark swartz, back in court today. what’s next on their possible retrial? details when we return.
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Disney --- Su (fast)
>> welcome to “world financial report.” i am matt nesto. before we get to the federal reserve, let’s update you on the market today and earnings crossing after the close of trying on a tuesday. walt disney saying third-quarter profit was up 20%, beating analysts’ estimates by two cents a share. the nation’s second biggest media company says net income rose to $604 million, 29 cents a share, up from $502 million a year ago. disney shares rallied 2% ahead of the report and continue to move higher in extended trading. su keenan has been tracking those late-breaking numbers and has the story.
>> disney up six cents a share as we speak in extended hours trading. the key to the latest earnings report is the recovery of disney’s theme parks from a three-year slump due to concerns about the economy and terrorism. the walt disney company says higher attendance boosted theme park revenue 32%. chief executive michael eisner has been adding new attractions such as the tower of terror at the california park and mission space at the florida park. the company’s improving fundamentals have quieted calls from critics that eisner step down as c.e.o. five months ago, a shareholder revolt led the board to strip eisner of the chairman title. scott banesh says the theme parks are taking part in a huge cyclical recovery. operating net income at the theme parks rose 21%. revenue rose 32% to $2.29 billion. chicago asset management’s peter goldman says before the report that the gains are coming from a combination of higher attendance, price increases and cost cuts.
>> i think attendance trends have been very strong. they’ve marginally increased rates coming in, offered incentives in terms of packages to stay there for multiple days so i think things are going very, very well.
>> rising advertising and audience ratings at number-one rated sports network espn helped boost profit at disney’s cable networks division. operating income at the media networks division, including abc, rose 16%. revenue rose more than 8% to $2.92 billion.
>> you’re getting mid teens increases in the affiliate fees paid to them by the cable m.s.o.’s at the same time the ratings are doing well. if ratings go well, they can charge more per thousand viewers to the advertisers.
>> analysts say abc is still a challenge for disney and it has said that network will be profitable in fiscal 2005. the ratings have fallen since the 1994-1995 season when it was the most-watched network. that’s not the story now.
>> it’s such a diverse company. another big one with many ramifications will be cisco, world’s largest maker of computer americaing equipment. the company said it had its biggest quarterly sales gain in three years, 26%, up from a year ago. $5.93 billion in sales for the quarter. the gains were due, in part, to a boost in acquisitions and new industries such as internet securities. the profit was up 41% to almost $1.4 billion, working out to 20 cents a share. if you exclude the items, that was a penny better than expectations. shares have been down in extended trading as you can see, down 65 cents right now ahead of the report, up 2%. down about 15% year to date. also out, cisco will reinstate c.e.o. john chambers’ calorie, $-- salary, $350,000 a year, up from a symbolic $1 cash salary now we look at the fed and stocks surged after the fed said economic growth is set to accelerate. the dow and s&p both up 1.3%. the nasdaq, 1.9% higher here today. some of your broader indexes, a lot of green arrows as you can see. the best performer of those, the small caps, the russell 2000 up 2.2%. the federal reserve decision unanimously to raise interest rates by a quarter of a point was a multimarket-moving event. the benchmark lending rate now at 1.5%, the second rate increase this year. the fed policymakers reinstated their pledge to lift borrowing costs at a “measured pace” to keep inflation low without choking off growth. today’s statement noted that output growth has moderated in recent months while improvement in the labor market has slowed. members of the federal open market committee say they’re the reality is, the orange line is estimated g.d.p. for the year or running right now. lasting 4.8%. now we’re at 1.5%. so g.d.p., above the fed rate is a rarity. as you can see, the orange line only momentarily, a brief period of time, above it there. but in the past 30 years, really that is something we do not see very often. some would say it’s unsustainable that rates will go higher and the g.d.p. will slow. if you look at another one, inflation, again, we’re looking at about 20 years’ worth of data here. typically the orange line, the fed rate, will spend most of its time above the white line except for recently, you can see inflation, annualized core inflation without food and energy, still above the increased federal reserve rate. just a quick check. two-year, five-year and 10-year treasuries versus the increased yield on the fed funds target rate at 1.5%. a little blip on all of these as you can see. time for our exclusive bloomberg survey and i can sum it up for you. of 30 economists surveyed by bloomberg about what will happen at the september federal reserve meeting, the majority predict no rate increase. 25 out of 30 say no change. and .25% increase is forecast by five of them. that conviction is low among some of them. richard caser at national city corp. says it depends on the price of oil. if oil goes down, rates can go up. the economist with a.g. edwards says the jobs report will be the key. if growth in jobs and hiring returns, the fed may see clear to raise rates. those few that see rates going up a quarter of a point, they’re more confident. u.b.s. economist morrie harris and brian westbre say that the labor and the economy will rebound in the next few weeks and they are calling for a rate hike in september. how does the fed’s decision today affect the real economy? we’re talking about consumers and businesses and we’ll find out what diane swonk has to say about that, chief economist at bank one.