U.S. economic growth will
be "subpar" in the second half of the year and interest rates
must be set at levels that reflect the "substantial headwinds"
facing the economy, San Francisco Federal Reserve Bank
President Janet Yellen said on Thursday.
"The slightly negative real (benchmark federal) funds rate
does not imply a highly accommodative policy stance," Yellen
told a lunch sponsored by the San Francisco Fed's Salt Lake
Yellen is not a voting member of the U.S. central bank's
policy-setting Federal Open Market Committee in 2008.
"My forecast is for sluggish growth in the second half of
this year, with substantial downside risks -- especially
emanating from the financial system," she added in her remarks,
the text of which was made available in advance.
In her first public remarks on the economy in almost two
months, Yellen gave no hint that she wants the Fed to raise
official short-term interest rates soon, and instead focused on
what she said were much-improved prospects for inflation.
"It seems clear that inflation risks have diminished
somewhat in recent months as commodity prices have come down
from their highs," Yellen said. That trend "has improved the
policy choice facing the Committee."
Both core and headline inflation should be "a bit over 2
percent" in 2009, she said.
Financial markets currently side with Yellen, and see very
little chance that the Fed will raise rates this year, despite
a drumbeat of hawkish commentary from some Fed officials.
GIVE ME THREE GOOD REASONS
Among key economic issues, Yellen said problems in
financial markets "are ongoing and perhaps deepening" as banks
and other financial firms scale back balance sheets and shrink
Other reasons why out-sized second-quarter growth would
prove "ephemeral" were the end of fiscal stimulus from tax
rebates and the rising U.S. dollar, which along with slower
global growth would likely crimp export demand, she said.
"We can no longer count on exports as an important source
of strength," she said.
The jobless rate is likely to rise in the second half of
2009, Yellen said.
The interaction of rising unemployment with falling home
prices, tighter credit and weak consumer spending could deepen
the vicious cycle that has been at work in the U.S. economy for
several quarters, she said.
Yellen said the kind of wage-price spiral that European
policy-makers are current fearful of shows few signs of setting
up residence in the United States.
"Outside of a few booming sectors such as energy, we hear
no reports of escalating wage pressures even though higher food
and energy prices have eroded the real incomes of American
workers," she said.
(Reporting by Ros Krasny; Editing by James Dalgleish)
Phillip Bennett, the former chief
executive of collapsed commodities broker Refco, reported to
prison on Thursday to serve a 16-year sentence for fraud, a
spokeswoman for the Federal Bureau of Prisons said.
Bennett, 60, was sentenced on July 3 after pleading guilty
in February to 20 criminal counts related to a $2.4 billion
fraud that led to Refco's collapse. The company was a global
trading empire until it unraveled in 2005.
On July 28, Bennett filed papers in U.S. District Court in
Manhattan to appeal his sentence for fraud and conspiracy.
The appeal was on his sentence only, not his conviction. As
part of his sentence, Bennett will forfeit all his assets.
The Bureau of Prisons spokeswoman said Bennett reported to
the Federal Correctional Institute in Fort Dix, New Jersey,
which is a low security prison for men.
Bennett had been ordered to be kept under house arrest in
his New Jersey home until his scheduled surrender on Thursday.
After serving his sentence, he is to be deported to his
Refco sought bankruptcy protection in October 2005 after
revealing that Bennett had hidden $430 million in bad customer
Before sentencing, Bennett's lawyers had sought leniency,
citing his guilty plea and cooperation with civil lawsuits
spurred by Refco's demise. In a memo to Judge Naomi Buchwald,
who oversaw the case, they had argued that a lengthy term would
likely be a life sentence for Bennett.
Prosecutors, however, argued that Bennett was a
"fundamentally and thoroughly dishonest human being," saying
his greed drove his long-running scheme to lie about Refco's
financial condition. Through the fraud, they said, Bennett
lived lavishly, acquiring luxuries including a $20 million
airplane and $11 million worth of race cars.
(Reporting by Grant McCool, Editing by Maureen Bavdek)
U.S. discounters, led by Wal-Mart
Stores Inc (WMT.N), remained a bright spot in a weak retail
industry in August, as shoppers sought back-to-school deals,
while department stores and luxury chains disappointed.
Among retailers reporting August sales on Thursday, teen
apparel outlets like Aeropostale Inc (ARO.N) managed to top
expectations in a flagging U.S. economy that has prompted
consumers to rein in their spending and curb mall trips.
Results "continue to show that there is a divide between
discretionary and non-discretionary retailers," said Ken
Perkins, president of Retail Metrics.
"Consumers are very focused on value, stretching their
dollars; and anything deemed not absolutely of need, they are
forgoing those purchases," he added.
Overall sales at stores open at least a year rose 1.6
percent in August, better than a 1 percent increase predicted
by analysts but still far weaker than 3.1 percent a year
before, according to Thomson Reuters Estimates.
slumped overall. The Standard & Poor's Retail Index (.RLX) was
down almost 2 percent as new government data sparked concern
about the labor market and corporate profits.
Perkins said the August sales offered little encouragement
for retailers during the all-important holiday season. The
pressures consumers face, including rising food costs and
tighter credit, are not likely to change before mid-November.
"These results are sort of mapping out more of what we're
going to see during the holiday shopping season," he said.
Industry forecasters are taking a cautious view of the
holiday season in the wake of lackluster back-to-school sales.
The International Council of Shopping Centers has said 2008
holiday sales should be their weakest since 2001, predicting a
rise of 3.6 percent against a 4.2 percent gain last year.
Wal-Mart posted a 3 percent rise in same-store sales,
beating analysts' forecasts of a 1.6 percent increase.
The world's biggest retailer cited strong sales of
groceries, medicines and other household goods and gave an
optimistic forecast for September, helped by back-to-school.
"For Wal-Mart, the value message is really timely and is
resonating," said Sarah Henry, an analyst with MFC Global
Wal-Mart said shoppers were waiting until the end of the
back-to-school period to make their purchases, a trend that was
accelerated as more schools opened later in the year.
Other low-price chains also fared well. Family Dollar
Stores Inc (FDO.N) posted a 3.6 percent rise in same-store
sales, compared with expectations for a 3 percent increase.
BJ's Wholesale Club Inc's (BJ.N) same-store sales rose 15.4
percent, above forecasts for a 14.1 pct rise.
"We're a treasure hunt to our customers," Dollar Tree Inc
(DLTR.O) Chief Executive Officer Bob Sasser told a Goldman
Sachs retail conference.
One surprise among off-price retailers was TJX Cos Inc
(TJX.N), which had flat same-store sales in August, below
analysts' and company expectations.
Excluding the impact of foreign currency exchange rates,
which hurt sales results instead of helping them as TJX had
anticipated, sales would have been up 1 percent, in line with
TJX shares slid 6.6 percent to $34.36.
THE RIGHT FASHION
Back-to-school sales gave a boost to apparel retailers such
as Aeropostale, which topped estimates with a same-store sales
rise of 13 percent. Rivals Hot Topic Inc (HOTT.O) and American
Eagle Outfitters Inc (AEO.N) posted smaller-than-expected
declines of 2.7 percent and 5 percent, respectively.
But higher-priced teen chain Abercrombie & Fitch Co (ANF.N)
stumbled, with an 11 percent fall in same-store sales, worse
than the 7.9 percent decline analysts had expected.
"Clearly these retailers know that that's (back-to-school)
their big opportunity," Henry said. "Getting fashion right
would have been the difference between doing well and doing
poorly this month."
The luxury sector showed more signs of weakness, as Saks
Inc (SKS.N) and Nordstrom Inc (JWN.N) posted
Nordstrom sales fell 7.9 percent, worse than the 7.1
percent fall analysts had expected, while Saks had a 5.9
percent fall, compared with forecasts for a 4.7 percent dip.
"I would guess that they are not willing to sacrifice
margin as much," Henry said. "That segment is under pressure
right now and both of those companies are more exposed" to
financial market stress.
Aeropostale shares fell 1.1 percent to $35.53 while Hot
Topic and American Eagle both gained around 4 percent. Saks was
down 16 cents, or 1.4 percent, to $11.17, and Nordstrom gave up
$1.52, or 4.6 percent, to $31.81.
(Additional reporting by Martinne Geller and Aarthi
Sivaraman in New York and Brad Dorfman and Ben Klayman in
Chicago, editing by Dave Zimmerman and Gerald E. McCormick)