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Omani inflation slowed to a four year low of 1.8 percent in July, the economy ministry said today, without giving a breakdown of the consumer price index.

The inflation rate fell from 2.9 percent in June, the ministry said on its Web site. Inflation in the Sultanate was last below 1.8 percent in August 2005, according to Bloomberg data compiled from the ministry.

Inflation in the Gulf Cooperation Council has slowed after oil prices plummeted from July 2008’s peak of $147.27 a barrel. The U.S. dollar, to which Oman’s currency is pegged, has also strengthened, making imports cheaper. Gulf states are also seeing a drop in real estate prices, with the most notable decrease in the United Arab Emirates, where prices in Dubai have halved.

The U.A.E. and Qatar will see the greatest reversal in inflation trends from the highest regional rates last year to deflation this year, Monica Malik, an economist at EFG-Hermes, said in a report on Aug. 26.

The GCC is an economic and political bloc including the U.A.E., Saudi Arabia, Kuwait, Qatar, Bahrain and Oman.

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German business confidence rose for a fifth month in August, suggesting Europe’s largest economy will gather strength after shaking off its worst recession since World War II.

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, increased to 90.5 from 87.4 in July. That’s the highest reading since September last year. Economists expected a gain to 89, the median of 41 forecasts in a Bloomberg News survey showed. The index reached a 26-year low of 82.2 in March.

Germany’s economy unexpectedly expanded 0.3 percent in the second quarter as improving global trade boosted demand for exports and the government’s 85 billion-euro ($122 billion) package to stimulate domestic spending started to kick in. Bundesbank President Axel Weber said last week that, while he’s “not yet convinced” the recovery can be sustained, third- quarter growth may be “better than thought.”

“The third quarter has all ingredients for another growth surprise,” said Carsten Brzeski, an economist at ING Group in Brussels. “The German economy steered out of recession faster than some pessimists had thought. However, any credit crunching and job shedding are clear speed limits to the recovery.”

The euro rose a quarter of a cent on Ifo’s report before easing back to $1.4308 at 10:50 a.m. in Frankfurt. The yield on the 10-year German benchmark bond fell three basis points to 3.25 percent.

Expectations Jump

Ifo’s measure of expectations increased to 95 from 90.4, while a gauge of current conditions rose to 86.1 from 84.4. Investor confidence jumped to the highest level in more than three years this month and the benchmark DAX share index reached an 11-month high yesterday.

German Chancellor Angela Merkel’s government, which faces a national election in September, is trying to rekindle growth with a spending package that includes tax breaks and a 2,500- euro payment for consumers who scrap their old car and buy a new one. The Economy Ministry has indicated its forecast for a 6 percent economic contraction this year may now be too pessimistic.

“Minus 6 percent is too negative,” Ifo economist Gernot Nerb said in an interview with Bloomberg Television. Rising expectations among exporters indicate manufacturing should improve, he said.

Fiscal Stimulus

BASF SE, the world’s biggest chemical company, said on Aug. 20 that demand is stabilizing and it has fewer employees at its main German plant on shortened working hours.

Volkswagen AG this month raised its full-year sales forecast after the “cash-for-clunkers” program helped spur demand for its Golf and Polo compacts. Deliveries may fall 5 percent this year, half the decline previously estimated, Europe’s largest carmaker said.

“The fiscal stimulus measures expire next year, that’s the problem,” said David Kohl, deputy chief economist at Julius Baer Holding AG in Frankfurt.

The Bundesbank expects unemployment to rise to 10.5 percent in 2010 from 8.3 percent today as companies cut costs to restore profit. That may damp consumer spending and undermine the recovery.

European Central Bank policy makers have stressed the heightened degree of uncertainty over the economic outlook and indicated they won’t rush to withdraw emergency measures to prop up the economy.

The ECB has cut its benchmark interest rate to a record low of 1 percent, flooded banks with cash and started buying 60 billion euros of covered bonds in an effort to revive lending.

“We see some signs confirming that the real economy is starting to get out of the period of freefall,” ECB President Jean-Claude Trichet said at the U.S. Federal Reserve’s annual symposium in Jackson Hole, Wyoming, on Aug. 22. This “does not mean at all that we do not have a very bumpy road ahead of us.”

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European consumer prices fell by the most in at least 13 years in July after energy costs declined and unemployment rose to the highest in a decade.

Prices in the euro region dropped 0.6 percent from a year earlier, the most since the data were first compiled in 1996, the European Union statistics office in Luxembourg said today. That exceeded the 0.4 percent decrease forecast by economists, according to the median of 32 estimates in a Bloomberg survey. Unemployment rose to 9.4 percent in June, the highest since 1999, a separate report showed.

More than 3 million people have joined the euro region’s jobless rolls in the last year, and the Organization for Economic Cooperation and Development expects the unemployment rate to reach 12 percent in 2010. As consumers and companies reduce spending to weather the worst recession in more than 60 years, inflation is also being pushed lower by a 50 percent drop in the price of crude oil over the last year.

“The larger-than-expected drop in inflation and the unrelenting rise in unemployment should serve as a stark reminder to the ECB that medium-term inflation risks in the euro zone are tilted to the downside,” said Martin van Vliet, senior economist at ING Bank in Amsterdam.

The European Central Bank aims for inflation to be just under 2 percent and ECB President Jean-Claude Trichet has said he expects inflation to “temporarily remain negative” before turning positive by year end. While the central bank says mid- to long-term price expectations are “anchored,” a European Commission measure of those expectations fell in July to the lowest since at least 1990, a report showed yesterday.

‘Deflationary Environment’

“The risks on the deflation side are there,” said Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Plc in London, which estimates euro-area inflation is the lowest since 1953. “The underlying dynamics do resemble those that you would see in a typical deflationary environment.”

The euro was little changed against the dollar after the data and traded at $1.4108 at 10:43 a.m. in London, up 0.2 percent on the day. The Dow Jones Stoxx 600 Index of European companies rose less than 0.1 percent to 225.31.

The ECB has cut its benchmark interest rate to a record low of 1 percent and started buying as much as 60 billion euros ($84 cash advance.6 billion) of covered bonds to stimulate lending.

The International Monetary Fund said in a report yesterday that the ECB should maintain its “accommodative” stance “as long as disinflationary pressures persist.” The ECB key rate’s 1 percent level should not be considered a “floor,” said Marek Belka, head of the Washington-based IMF’s European department.

‘This Possibility’

“We do not see deflation as imminent,” Belka said. “But we shouldn’t completely exclude this possibility.”

German consumer prices fell in July from a year earlier for the first time in 22 years, data showed this week. Spain and Ireland have experienced annual price declines since March as Tesco Plc and Marks & Spencer Group Plc have reduced prices in their Irish stores.

Lower oil prices contributed to a 54 percent drop in second-quarter earnings at Total SA, Europe’s third-largest oil producer, the Paris-based company said today. Laurent-Perrier SA, the maker of Grand Siecle champagne, may see profitability decline as consumers switch to cheaper vintages, Chief Executive Officer Stephane Tsassis said in an interview.

Metro AG, Germany’s largest retailer, said on July 17 that it plans to charge less on 5,000 items at its Cash & Carry unit, and said the same day that it would cut 1,340 jobs.

Jobless Rate

Unemployment in the euro region increased by 3.17 million people in the year through June and the highest jobless rate was in Spain, at 18.1 percent, according to today’s report. Most Europeans think the worst of the crisis is still to come and a third of workers are “very concerned” about losing their jobs, a survey published on July 24 by the European Commission showed.

The inflation report released today is an estimate. The statistics office will publish a detailed breakdown of the consumer-price data, including energy-price inflation as well as the core rate, on Aug. 14.

Source

U.K. house prices increased for a third month in July as a shortage of supply helped shield the property market from the economic slump, Nationwide Building Society said.

The average cost of a home climbed 1.3 percent to 158,871 pounds ($260,000) after rising 1 percent in June, the mortgage lender said in a statement today. Economists predicted a 0.2 percent increase, according to the median of 14 forecasts in a Bloomberg News survey. From a year earlier, prices fell 6.2 percent, the smallest annual drop since May 2008.

The report adds to signs that the U.K. housing market may be starting to recover as the economy emerges from the worst recession in at least three decades. The Bank of England will decide next week whether to continue its program of buying bonds with newly created money.

“House prices have been remarkably resilient this year, despite a recessionary economic background with sharply rising unemployment,” said Martin Gahbauer, chief economist at Nationwide. “It is unlikely that price increases can be sustained for long at the very strong rate observed over the past few months. One of the factors helping prices to stabilize in 2009 is the shortage of properties available for sale.”

The pound rose and gilts fell after the report business cards. The pound gained 0.6 percent against the dollar to $1.6468 as of 8:50 a.m. in London. The yield on the 10-year government bond increased 2 basis points to 3.98 percent. Yields move inversely to prices.

Supply Shortage

House prices rose 2.6 percent in the three months through July, the most since February 2007, compared with 1 percent growth in the period through June, Nationwide said.

Former Bank of England policy maker Stephen Nickell said today that Britain needs to build 3 percent more homes than he estimated last year because the recession has hit homebuilding.

U.K. mortgage approvals rose to a 14-month high in June, the central bank said yesterday. House prices rose 1.3 percent in the first seven months of 2009, suggesting values may rise “slightly” in 2009 after falling about 16 percent last year, Nationwide said.

The Bank of England kept its key interest rate at a record low of 0.5 percent this month and voted for no change in the asset-purchase arrangements. Policy makers make their next decision on the benchmark rate and so-called quantitative easing on Aug. 6.

Source

U.K. unemployment claims rose the least in a year in June, adding to evidence that the worst of the recession may have passed.

Jobless benefit claims climbed from May by 23,800 to 1.56 million, the highest level in 12 years, the Office for National Statistics said in London today. The median forecast of 29 economists in a Bloomberg News survey was for a 41,300 increase. Overall unemployment in the quarter through May increased by 281,000, the most since records began in 1971.

Prime Minister Gordon Brown is trying to pull Britain out of its worst economic contraction in five decades less than one year before the next election. Reports yesterday showed the housing market improved last month and retail sales rose from a year earlier, while Bank of England Deputy Governor Charles Bean said today the economy is probably “bumping along the bottom.”

“The second-quarter contraction won’t be as bad as the previous one,” said Amit Kara, an economist at UBS AG in London and a former Bank of England official. “The recovery will be there, though I think we should see unemployment increase at least until the middle of next year.”

The claimant-count increase on the month was the smallest since May 2008, the statistics office said.

Overall unemployment, measured by International Labour Organization standards, rose to 2.38 million, the most since 1995. The British Chambers of Commerce said last week that unemployment may reach 3.2 million by the middle of next year.

Global Comparison

The jobless rate on the ILO measure was 7.6 percent, the statistics office said. That compares with 9.5 percent in the U.S. and the euro region, and 5.2 percent in Japan.

Brown, who must call an election by next June, has seen voters’ support dwindle as the recession gathered pace. The opposition Conservative Party leads the ruling Labour Party by a 16 percentage-point margin, according to a YouGov Plc poll published in the People newspaper on June 28 fast cash.

Bean says the recession has probably reached a bottom, though he also told BBC Radio Leeds this week that the economic recovery may be a “long haul” and it’s “inevitable” unemployment will keep increasing. He also said that Brown’s government would allow the Bank of England to surpass the 150 billion-pound ($245 billion) ceiling for asset purchases by a “reasonable amount” if necessary.

Job Cuts

For now, companies are still planning to shed workers. British Airways Plc said yesterday that it must push through job and pay cuts for the airline to survive the recession. Corus, Europe’s second biggest steelmaker, may shed as many as 366 workers at a factory in northeastern England.

The job market will eventually improve if a recovery takes root. The economy’s pace of contraction probably slowed to 0.4 percent in the second quarter from 2.4 percent in the first three months of the year, according to the National Institute of Economic and Social Research.

The housing market improved last month as more real-estate agents and surveyors in London said prices rose than fell, the Royal Institution of Chartered Surveyors said yesterday. Same- store retail sales increased 1.4 percent from a year earlier, the British Retail Consortium said.

The prospect of further job losses is keeping wages down. Excluding bonuses, earnings grew 2.6 percent, the least since records began in 2001. Average earnings in the three months through May rose 2.3 percent from a year earlier, the statistics office said.

Hays Plc, the U.K.’s largest recruitment company, said last week it will freeze pay for all staff including executives after the amount of fees it collected declined at an increasing rate.

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Goldman Sachs Group Inc. says when it comes to inflation, the Federal Reserve can relax. That kind of talk makes Morgan Stanley nervous.

Joachim Fels, co-chief global economist at Morgan Stanley, sees a risk that the Fed will keep the easiest credit since the Great Depression for too long. Ed McKelvey, U.S. economist at Goldman in New York, says those concerns are overblown, and that officials have time to deploy as many as 10 options for ending their $1.1 trillion aid to the banking system and economy without letting consumer prices climb.

The debate underscores a widening division among economists over whether the central bank will hold onto the gains it’s achieved in fighting inflation over the past three decades. Record liquidity injections and a projected federal budget deficit of $1.85 trillion threaten to undermine that legacy.

“The greater risk is they keep accommodation too long rather than tighten too quickly,” Fels, who’s based in London, said in an interview. “The price they would then pay is higher inflation for keeping the economy afloat.”

A measure of inflation expectations watched by Fed officials rose “closer to the 2 percent level” in recent months after being “very negative late last year,” St. Louis Fed President James Bullard said in a June 30 presentation in Philadelphia. He also said investors “are not expecting a lot of inflation over the next five years.”

The Fed’s preferred price gauge, which excludes food and energy prices, rose 1.8 percent in May from a year earlier. Fed officials expect inflation in a range of 1.7 percent to 2.0 percent over the longer term, according to minutes of April’s Federal Open Market Committee meeting.

Meltzer’s View

“I agree with Morgan Stanley that the markets are too sanguine about inflation,” said Allan Meltzer, a Fed historian and economics professor at Carnegie Mellon University in Pittsburgh. “The Fed absolutely has the tools and know-how, but the question is, will they have the guts to use them? I don’t think there is a snowball’s chance in hell they will be willing to tighten to slow inflation down.”

Goldman Sachs says the risk is in the other direction, that the Fed may have a tougher time easing credit further should the economy deteriorate. Jan Hatzius, the company’s chief U.S. economist in New York, said in a July 1 research note that it’s “very unlikely” the Fed will “lose control” of inflation and that the Fed should err on the “accommodative side” of monetary policy.

‘Screw-Up’ Scenario

“The market seems to have a bias in its thinking that somehow the Fed is going to totally screw up,” resulting in inflation, McKelvey, who used to work at the Fed, said in an interview. He cited conversations with clients and what he’s read in the press, as well as the rise in Treasury yields and trader expectations of Fed interest-rate increases in recent weeks.

McKelvey, who wrote a June 30 note outlining the Fed’s options, cautioned there’s no guarantee the Fed will get it right, and “political constraints” might prevent the central bank from using its tools.

The Fed lowered its main interest rate almost to zero in December, switching to asset purchases and credit programs as the main policy levers. Chairman Ben S. Bernanke is leading plans to buy as much as $1.25 trillion of mortgage-backed securities and $200 billion of federal agency debt by year-end, along with $300 billion of long-term Treasuries by September cash advance.

Bernanke’s Options

Bernanke has three sets of tools, about 10 options total, for unwinding credit, McKelvey said. They include the reduction or end of non-emergency and emergency lending programs; selling or ceasing purchases of securities; and reducing bank reserves using tools such as the issuance of Fed debt.

“This one’s easy: Morgan Stanley is wrong and Goldman is right,” said Mark Gertler, a New York University economist and research co-author with Bernanke. “The Fed will be able to contain inflation pressures through a combination of raising interest rates and unwinding its balance sheets.”

The expansion of the Bank of Japan’s balance sheet also had no effect on inflation in that country, Gertler said.

The Fed took a first step last month toward ending its efforts to revive credit, deciding to let one emergency lending program expire and trim two others. Bullard said last week that policy makers need to craft a broader plan for unwinding the asset purchases to reduce inflation risks and bolster confidence in an economic recovery.

“The Fed needs to reduce some of the uncertainty in markets about how the exit strategy looks,” said Fels. “They can’t tell us when, but there needs to be more transparency on the how.”

Interest on Deposits

Some top Fed officials have said they plan to rely on raising the rate paid on banks’ deposits with the Fed as a major component of the central bank’s strategy to tighten credit.

Bernanke has a chance to give a more detailed outline of the Fed’s exit strategy on July 21, when he delivers the Fed’s semiannual monetary policy report to Congress and testifies before the House Financial Services Committee.

The Fed has increased total assets on its balance sheet by $1.1 trillion in the past year to $2.01 trillion as of July 1 to unfreeze credit markets and support banks’ demand for cash. Short-term lending to commercial banks and bond dealers has declined in recent weeks, owing in part to falling costs for private borrowing.

Yellen Warning

Goldman’s views may be shared by some Fed officials. San Francisco Fed President Janet Yellen said in a June 30 speech to the Commonwealth Club of California that the “predominant risk” is that inflation will “be too low, not too high, over the next several years.”

Inflation excluding food and energy may fall to about 1 percent over the next year and remain below 2 percent, with an unlikely possibility of turning into deflation if the economy fails to recover soon, Yellen said.

Another Fed district bank president, Charles Evans of Chicago, told reporters in London on July 1 that he also sees inflation falling “a bit from where we are now.”

“I don’t worry about the technical ability of the Fed to do it,” Martin Feldstein, a professor of economics at Harvard University, said in a Bloomberg Radio interview July 1. “What worries me is the political hurdle that they would be facing.” Congress won’t “easily” digest the Fed’s desire to limit lending and restrict inflation, Feldstein said.

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Japan’s industrial output rose for a third month in May as companies rebuilt inventories and the economy started to climb out of its deepest postwar recession.

Production increased 5.9 percent from a month earlier, the Trade Ministry said today in Tokyo, matching a gain in April that was the fastest since 1953. Economists surveyed by Bloomberg predicted a 7 percent increase, and factories were still producing 29.5 percent less than in May last year.

Manufacturers forecast output will advance this month and next, albeit at a slower pace, and economists expect the Bank of Japan’s Tankan survey this week to show sentiment among large manufacturers rebounded from a record low. The figures provide the latest evidence that the world recession is moderating as central banks flood their economies with cash and governments spend $2.2 trillion to prop up demand.

“Today’s data suggest companies are clearing inventories steadily and now the biggest focus is shifting to what happens after the inventory adjustment is completed,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “We have yet to see a pickup in final demand, which is crucial for Japan’s economy to sustain a recovery.”

A separate ministry report showed retail sales fell 2.8 percent in May from a year earlier, a ninth monthly decline, as a worsening job market forced households to cut back. Sales were unchanged from April.

Stocks Rise

The Nikkei 225 Stock Average added 0.4 percent at the lunch break in Tokyo, taking its gains to 41 percent from a 26- year low on March 10. Rengo Co., the nation’s biggest maker of cardboard boxes, surged 5.9 percent. The yen traded at 95.56 per dollar from 95.19 before the reports were published.

Production has risen for three months running, following a five-month losing streak that left about half of the country’s factory capacity sitting idle as of April. The largest output increase on record was 7.9 percent in March 1953, near the end of the Korean War.

Gains in production will slow to 3.1 percent in June and 0.9 percent next month, the ministry said, indicating that the inventory restocking may soon run its course. “Momentum is gradually fading,” said Muto at Sumitomo Mitsui.

The Organization for Economic Cooperation and Development raised its forecast for its 30 member nations for the first time in two years last week, and reports showed the U car insurance.S. economy is pulling out of its slump. Consumer spending advanced for the first time in three months in May and household sentiment rose to the highest level since February 2008.

Tankan Survey

An index of sentiment among large manufacturers will climb for the first time in a year to minus 43 from a record low of minus 58, economists predict the Tankan will show on July 1. A negative number means pessimists still outnumber optimists.

Japan’s economy is likely to grow at a 2.3 percent annual pace this quarter, according to economists surveyed by Bloomberg, following the previous period’s record 14.2 percent contraction.

China’s 4 trillion yuan ($586 billion) in government spending is feeding demand for Japan’s heavy equipment, autos and materials. China this year surpassed the U.S. as Japan’s biggest export customer.

“The impact of China’s infrastructure building has started to emerge,” Taizo Kayata, senior executive officer in charge of China operations at Komatsu Ltd., Japan’s biggest maker of construction equipment. Kayata said Chinese sales probably grew between 10 percent and 20 percent in June.

U.S., Europe

Still, rising unemployment in the U.S. and Europe may limit the rebound for Japan’s manufacturers. Nissan Motor Co. Chief Executive Officer Carlos Ghosn said last week that the U.S. market isn’t recovering. The company, which is forecasting its second annual loss, cut domestic production by 36 percent in May from a year earlier.

Job and wage cuts will probably curtail spending by Japanese consumers, which makes up more than half of the economy. Reports tomorrow are expected to show the unemployment rate rose to 5.2 percent in May and wages slid for a 12th month, extending their longest losing streak in five years, according to economists surveyed by Bloomberg.

Panasonic Corp., the world’s largest maker of plasma televisions, last week said it will reduce the annual salaries of its 10,000 managers this year.

“Consumer spending will remain weak for a while as long as the deterioration in the job market and wages continues,” said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. “Japan’s recovery will be very weak.”

Source

Federal Reserve officials will oppose the Obama administration’s proposal to strip the central bank of its powers to protect consumers from predatory lending.

Policy makers will resist President Barack Obama’s blueprint because its new Consumer Financial Protection Agency would supplant the Fed’s authority to write rules on lending and disclosure practices on mortgages and credit cards. A review of the role of the 12 regional Fed banks also risks compromising the independence of the Federal Reserve system, said former Fed governor Randall Kroszner.

“We’ve got to make sure that we have somebody who is focused and responsible for protecting consumers, whether it’s on subprime loans, for their mortgages, for their credit cards,” Obama said this week in an interview with Bloomberg Television.

The proposal is likely to alter shape as industry lobbyists, consumer advocates, lawmakers and the central bank itself weigh in on what’s likely to be a months-long wrangle over the biggest regulatory changes in decades. For the Fed, a second facet is the administration’s call for a “comprehensive review” of its organization and structure, which includes 12 district banks whose presidents are appointed by local boards and have authority to vote on interest rates.

The Fed may say that the regional banks become even more important as some supervisory powers broaden under the Treasury plan. Obama’s blueprint would have the central bank take on new authority to oversee all of the financial firms whose collapse would threaten the entire system.

Bernanke Opposition

Central bankers show no desire to tamper with the appointment process of the regional bank presidents, and Chairman Ben S. Bernanke told lawmakers earlier this month he opposes making them subject to Senate approval.

Because the presidents are outside the political appointment process, they reinforce independence, said Kroszner, who is now an economist at the University of Chicago Booth School of Business. They also have a record of occasional dissenting votes against the Washington-based Board of Governors on monetary policy.

“The Congress structured the Fed with representatives in Washington and representatives from the broader economic community around the country,” Kroszner said. “That balance has served us well for nearly 100 years.”

Congressional leaders criticized the Fed for foot-dragging on consumer protection as originations of subprime mortgages to borrowers with blemished or limited credit histories more than doubled in three years to around $600 billion in 2006. The subprime lending bust ignited the global credit crisis in 2007.

Congressional Criticism

Bernanke has overseen a tightening of rules on high-cost mortgages and boosted disclosure requirements. Still, Congress viewed the Fed’s response as tardy, a view that was also voiced in the blueprint released yesterday by the Treasury.

“Recent Federal Reserve regulations have been strong, but quite late in coming,” the Treasury report said payday loans. “Moreover, they do not ensure that the federal banking agencies will remain committed to consumer protection.”

The Fed has powers to prevent predatory lending under the 1994 Home Ownership and Equity Protection Act. The Fed can also dictate disclosure rules under the Truth in Lending Act, and can hold banks accountable for lending patterns under the Community Reinvestment Act.

Lending Powers

The Fed may also lose independence on one of its broadest lending tools as congressional leaders and the administration seek to limit the Fed’s authority to make emergency loans to any corporation in “unusual and exigent circumstances.” The Fed used the Depression-era power to save Bear Stearns Cos. and American International Group Inc. from disorderly collapse.

Bernanke and Fed governors have also invoked the authority to support the commercial paper and asset-backed securities markets, and to loan to government bond dealers. Total credit extended under section 13.3 of the Federal Reserve Act amounted to $309.2 billion as of June 10.

“That type of lending is ultimately putting taxpayers at risk,” Lawrence Summers, director of Obama’s National Economic Council, said in an interview with Bloomberg Television June 17. “There should be some democratic accountability.”

In the area where the Fed gains authority, over financial companies judged too big to fail, it will have the power to set stronger capital and liquidity standards.

‘Stress Tests’

Bernanke has highlighted the need for better oversight of large, complex financial institutions and their linkages throughout the financial system. The Fed’s recent “stress tests” of the 19 largest banks showed how the central bank can deploy scores of accountants, lawyers, bank examiners, and economists to come up with a comprehensive view of risks in the financial system.

Still, any suggestion of giving the Fed more power has met with bipartisan opposition on the Senate Banking Committee. Senator Christopher Dodd, the Connecticut Democrat who chairs the panel, said in an interview that it should be “an open question” which agency assumes the role.

The central bank “utterly failed the American people as a regulator,” Senator Richard Shelby of Alabama, the committee’s ranking Republican, said in a Bloomberg Television interview. “Now you want to pile more and more responsibility on them? We better not do this.’

Fed spokeswoman Michelle Smith said “the administration’s financial regulatory reform proposal represents an important contribution to a critical national debate,” and that “we look forward to working with the administration and the Congress in coming months.”

Source

Federal Reserve officials will oppose the Obama administration’s proposal to strip the central bank of its powers to protect consumers from predatory lending.

Policy makers will resist President Barack Obama’s blueprint because its new Consumer Financial Protection Agency would supplant the Fed’s authority to write rules on lending and disclosure practices on mortgages and credit cards. A review of the role of the 12 regional Fed banks also risks compromising the independence of the Federal Reserve system, said former Fed governor Randall Kroszner.

“We’ve got to make sure that we have somebody who is focused and responsible for protecting consumers, whether it’s on subprime loans, for their mortgages, for their credit cards,” Obama said this week in an interview with Bloomberg Television.

The proposal is likely to alter shape as industry lobbyists, consumer advocates, lawmakers and the central bank itself weigh in on what’s likely to be a months-long wrangle over the biggest regulatory changes in decades. For the Fed, a second facet is the administration’s call for a “comprehensive review” of its organization and structure, which includes 12 district banks whose presidents are appointed by local boards and have authority to vote on interest rates.

The Fed may say that the regional banks become even more important as some supervisory powers broaden under the Treasury plan. Obama’s blueprint would have the central bank take on new authority to oversee all of the financial firms whose collapse would threaten the entire system.

Bernanke Opposition

Central bankers show no desire to tamper with the appointment process of the regional bank presidents, and Chairman Ben S. Bernanke told lawmakers earlier this month he opposes making them subject to Senate approval.

Because the presidents are outside the political appointment process, they reinforce independence, said Kroszner, who is now an economist at the University of Chicago Booth School of Business. They also have a record of occasional dissenting votes against the Washington-based Board of Governors on monetary policy.

“The Congress structured the Fed with representatives in Washington and representatives from the broader economic community around the country,” Kroszner said. “That balance has served us well for nearly 100 years.”

Congressional leaders criticized the Fed for foot-dragging on consumer protection as originations of subprime mortgages to borrowers with blemished or limited credit histories more than doubled in three years to around $600 billion in 2006. The subprime lending bust ignited the global credit crisis in 2007.

Congressional Criticism

Bernanke has overseen a tightening of rules on high-cost mortgages and boosted disclosure requirements. Still, Congress viewed the Fed’s response as tardy, a view that was also voiced in the blueprint released yesterday by the Treasury.

“Recent Federal Reserve regulations have been strong, but quite late in coming,” the Treasury report said no fax cash advance. “Moreover, they do not ensure that the federal banking agencies will remain committed to consumer protection.”

The Fed has powers to prevent predatory lending under the 1994 Home Ownership and Equity Protection Act. The Fed can also dictate disclosure rules under the Truth in Lending Act, and can hold banks accountable for lending patterns under the Community Reinvestment Act.

Lending Powers

The Fed may also lose independence on one of its broadest lending tools as congressional leaders and the administration seek to limit the Fed’s authority to make emergency loans to any corporation in “unusual and exigent circumstances.” The Fed used the Depression-era power to save Bear Stearns Cos. and American International Group Inc. from disorderly collapse.

Bernanke and Fed governors have also invoked the authority to support the commercial paper and asset-backed securities markets, and to loan to government bond dealers. Total credit extended under section 13.3 of the Federal Reserve Act amounted to $309.2 billion as of June 10.

“That type of lending is ultimately putting taxpayers at risk,” Lawrence Summers, director of Obama’s National Economic Council, said in an interview with Bloomberg Television June 17. “There should be some democratic accountability.”

In the area where the Fed gains authority, over financial companies judged too big to fail, it will have the power to set stronger capital and liquidity standards.

‘Stress Tests’

Bernanke has highlighted the need for better oversight of large, complex financial institutions and their linkages throughout the financial system. The Fed’s recent “stress tests” of the 19 largest banks showed how the central bank can deploy scores of accountants, lawyers, bank examiners, and economists to come up with a comprehensive view of risks in the financial system.

Still, any suggestion of giving the Fed more power has met with bipartisan opposition on the Senate Banking Committee. Senator Christopher Dodd, the Connecticut Democrat who chairs the panel, said in an interview that it should be “an open question” which agency assumes the role.

The central bank “utterly failed the American people as a regulator,” Senator Richard Shelby of Alabama, the committee’s ranking Republican, said in a Bloomberg Television interview. “Now you want to pile more and more responsibility on them? We better not do this.’

Fed spokeswoman Michelle Smith said “the administration’s financial regulatory reform proposal represents an important contribution to a critical national debate,” and that “we look forward to working with the administration and the Congress in coming months.”

Source

Some 14 states have only a few weeks left to gain approval for highway projects or risk losing millions of stimulus dollars.

All states have until the end of June to "obligate" half their share of stimulus funds for road and bridge improvements. If they don’t, the federal Department of Transportation will redistribute half the leftover money.

That means states must gain approval for their projects from the Federal Highway Administration, an agency of the Department of Transportation. The money doesn’t actually have to be spent, which can take months as projects go through the contracting and construction process.

States are sharing $26.6 billion for highway infrastructure projects, though only $18.6 billion is subject to the June deadline. The road allocations are among the earliest of the $280 billion in funds going to states and municipalities as part of the $787 billion recovery act.

While many states have safely cleared the hurdle, several have to buckle down in coming weeks if they hope to reach the 50% mark.

Alaska has only obligated 6.3% of its $122.8 million in funds, while Ohio has gained approval for only 15.7% of its $648.2 million share, as of May 22, according to the department.

These states’ progress stands in sharp contrast to places such as Wyoming, which has already won approval of 97.5% of its $110.3 million share.

Federal transportation officials are in close contact with their state counterparts to review and sign off on applications, said Joel Szabat, who co-leads the recovery effort for the department. They are approving nearly $1 billion in projects a week, nearly twice the typical rate.

More than 3,500 projects nationwide have already received the nod. Some states have dozens of projects approved in a day.

"One of our biggest focuses is that every state meets that deadline and is not penalized," Szabat said. The agency is "highly confident that every state will have over 50% obligated by the time the 120-day deadline comes around."

Ohio’s unusual path

Ohio transportation officials know they are moving at a slower pace than many of their peers elsewhere in the nation. That’s because they took a unusual path to decide what projects to fund, said Scott Varner, the state department’s spokesman.

The state received 4,600 ideas after soliciting proposals from cities, counties and people. It then narrowed the list down to 2,200 eligible for federal funding, before choosing 200 to invest in payday loans.

The Buckeye State is also seeking to fund some non-traditional projects as part of its highway allotment. For instance, it won approval to spend $6.8 million on replacing a shipyard crane in Toledo, which supports ship maintenance and vessel construction projects and will create or save 187 jobs. It is also hoping to get the okay on a $20 million investment in design work for Cleveland’s Opportunity Corridor, aimed at improving access from the city’s central east side to the freeway.

These initiatives required closer collaboration with federal officials since they aren’t the typical road repaving and bridge replacement work, Varner said.

"It did take a little more time in part because we had to work with our Federal Highway Administration office in Ohio," he said.

Still, state officials say they are not concerned they will miss the deadline. They are receiving approval for millions of dollars worth of projects a week, and have more than $50 million before federal reviewers now.

"We know which projects we have planned to meet the 120-day deadline," Varner said. "We think we’re on target."

Still, the delay has meant shovels have yet to hit the Ohio roads. The state has awarded two contracts and expects to approve up to 20 more by week’s end. Construction should start within the next month.

Wyoming working double-time

In Wyoming, transportation officials have sped up their contracting process in recent months. Work began on some projects in early May.

Normally, it can take six weeks for the state to advertise projects and for contractors to submit bids. Now it takes only three weeks. Also, the Wyoming Transportation Commission meets twice a month to award contracts, rather than just once.

As a result, the state has obligated nearly all of its stimulus funds for highway projects. And, officials feel that the rapid pace has brought in more competition, especially from out-of-state companies. Instead of having just two or three bidders per project, it is now seeing seven on average. And bids are coming in below estimates, freeing up money to fund more projects.

"If we could get our jobs out the door quicker, we felt we could get more competition from contractors," said Del McOmie, chief engineer for the Wyoming Department of Transportation. 

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