EDWARDSVILLE
Bank of England Chief Economist Spencer Dale joined policy makers Andrew Sentance and Martin Weale in voting for an interest-rate increase as a split widened on the dangers of inflation at double the target.
“For three members, the case for removing some monetary stimulus at this meeting was compelling,” according to minutes of the Feb. 10 decision published today in London. “Of those members not favoring a rise in bank rate, some thought that the case for an increase had nevertheless grown in strength.”
Among members pushing for the first interest-rate increase since July 2007, Dale and Weale voted for a 25 basis-point move from the record low of 0.5 percent, while Sentance increased his call to 50 basis points. Adam Posen maintained his vote to add 50 billion pounds ($81.2 billion) to the bank’s 200 billion- pound bond-purchase plan. The other five members voted for no policy changes. The pound rose after the minutes were published.
The Monetary Policy Committee noted the risks of inflation and said “one possibility was that the recent increase in commodity prices, which in many cases had been associated with strong growth in emerging market economies, would continue.”
On the downside, it said that while the “apparent weakness” of the economy in the fourth quarter “could prove temporary,” it could “also be an early signal of a worsening outlook for growth and hence medium-term inflation.”
Rate Bets
The pound rose as much as 0.9 percent against the dollar following the decision and was 0.5 percent stronger at $1.6219 as of 11:09 a.m. in London. Short sterling futures dropped, pushing the implied yield on the December contract up 3 basis points to 1.76 percent.
Higher yields signal investors are adding to bets that the central bank will raise interest rates. Investors are wagering that the bank will increase its benchmark rate to 0.75 percent by its May meeting, 1 percent by September and 1.25 percent by December, according to Sterling Overnight Index Average data from Tullett Prebon Plc.
Dale’s decision marks the first time a career bank official has argued for a change in policy since the bond plan reached its current limit in November 2009. Sentance, who started his drive for higher rates in June, Weale and Posen are among the four “external” members of the panel, who serve part time. The remaining five are “internal” members who are full-time employees at the bank.
‘Mounting Evidence’
“We see these developments as consistent with our expectation for a rate hike in May,” said Philip Rush, an economist at Nomura International Plc in London. “Barring any major shocks between now and then, the MPC is effectively saying that it will be appropriate to start withdrawing stimulus” around the middle of the year.
Sentance voted for a 50 basis-point increase as “there was mounting evidence that firms were able to pass on cost increases to the prices they set, and noted also that nominal domestic demand had been growing for some time at near to the top of its typical range prior to the recession.”
Posen indicated he is growing more concerned about inflation, noting that a “sustained upward trend in global demand prospects, or a shift in sentiment against sterling, could outweigh the domestic forces pushing down on inflation.”
Governor Mervyn King said last week the bank hasn’t preannounced higher rates, and suggested that investors were too quick to raise bets that borrowing costs would increase soon to contain prices. Inflation quickened to 4 percent in January, double the central bank’s target, fueled by a government sales- tax increase, soaring commodity prices and a weaker pound.
In a letter published Feb. 15 to Chancellor of the Exchequer George Osborne explaining the increase in the inflation rate, King said there was a “great deal of uncertainty” about the outlook as he noted “real differences of view” on the panel.
“With its credibility as an inflation fighter increasingly at stake,” the bank may raise rates “by the autumn — or even sooner,” Jean-Michel Six, an economist at Standard & Poor’s in Paris, said in a research note yesterday.
Be careful when buying gift cards on a display rack at a store. They could be a target for fraudsters.
Internet company AOL says its fourth-quarter net income grew despite lower revenue, as the year-ago results were weighed by restructuring costs related to its separation from Time Warner Inc. and other items.
AOL Inc. said Wednesday its net income for the October-December quarter was $66.2 million, or 61 cents per share. This is up from $1.4 million, or a penny per share, in the same quarter a year ago.
AOL says revenue fell 26 percent to $596 million from $806.7 million. AOL says ad revenue dropped partly due to changes it is making to turn its business around, including the selling of unprofitable units.
Analysts polled by FactSet had expected a profit of 52 cents per share and revenue of $589.7 million.
The Treasury Department says it will conduct an auction this week to sell the warrants it received from Boston Private Financial Holdings Inc. The sale is the latest effort by the government to recoup the costs of the $700 billion financial bailout.
Treasury said that the sale of 2.89 million warrants from the Boston-based financial institution will take place on Tuesday with the results announced Wednesday. It set a minimum bid price of $1.40 per warrant.
Purchase of the warrants gives the holder the right to buy Boston Financial common stock at a fixed price faxless pay day loans.
Last week, the government received $312.2 million from the sale of warrants it held in Citigroup, a bank it rescued with $45 billion in support from the Troubled Asset Relief Program during the height of the financial crisis in 2008.
ST. LOUIS
Residents of rural communities in southeastern Australia were sent emergency evacuation orders before dawn Wednesday, urged to leave their homes with three days of supplies just before floodwaters breached levees and swamped the town.
Up to 1,500 homes in the northern Victoria town of Kerang could be affected if the Lodden River rises any further.
The State Emergency Services (SES) said the Kerang levee has been breached in many places and the townspeople should head for a relief center on higher ground.
“You should ensure you have left your property immediately,” the SES said in text message alerts sent about 5:20 a.m. to the town’s 2,500 residents.
“We have enough resources and enough high ground for people to still operate within Kerang, but if it becomes totally inundated there will be very few people left in town,” Mayor Max Fehring told Sky News.
Walls of water miles (kilometers) wide are surging across northern and western Victoria in the wake of record rainfall last week.
Floodwaters have already left 1,000 households in Victoria’s northwest without power, and thousands more homes are under threat of cuts as substations and low-lying power lines are submerged.
Energy supplier Powercor built earthen barriers around the substation in Kerang, in a floodplain expected to be inundated by six feet (two meters) of water.
Across Victoria state, more than 3,500 people have evacuated their homes, with 51 towns and 1,500 properties already affected by rising waters.
The Victorian floods follow weeks of massive flooding in northeastern Queensland which left two-thirds of the giant state underwater and 30 people dead, most of them in a flash flood that hit towns west of the state capital, Brisbane.
The government has said the Queensland floods could be the country’s most expensive natural disaster ever.
The price tag from the relentless floods was already at $5 billion before muddy brown waters swamped Brisbane last week.
ST. LOUIS
The U.S. government posted a wider budget deficit in November as spending swelled compared with the same time last year when a shift in the timing of payments for programs like Medicare and Social Security damped outlays.
The deficit was $150.4 billion last month, exceeding the median estimate of economists surveyed by Bloomberg News, compared with $120.3 billion in November 2009, according to the Treasury Department’s budget statement released in Washington. For the first two months of the 2011 fiscal year, the shortfall narrowed to $290.8 billion from $296.7 billion in the same period last year as revenue improved.
Receipts climbed 12 percent last month as the recovery in the job market began boosting individual tax payments. An agreement by President Barack Obama and congressional Republicans including extending Bush-era tax cuts and jobless benefits may boost the deficit this year and next.
“Were starting to see some positive revenue growth,” said Gary Thayer, chief macro strategist at Wells Fargo Advisors in St. Louis. “We are seeing a healthier economy.”
Stocks held earlier gains as reports showed consumer confidence increased more the forecast this month and the trade deficit dropped to a nine-month low in October. The Standard & Poor’s 500 Index rose 0.5 percent to 1,239.59 at 2:41 p.m. in New York.
Confidence, Trade
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 74.2 from 71.6 at the end of November. A Commerce Department report showed the U.S. trade deficit shrank to $38.7 billion from $44.6 billion in September as a weaker dollar and growing economies overseas propelled exports to a two-year high.
A survey of 27 economists conducted by Bloomberg News projected a budget deficit of $138 billion in November. The non- partisan Congressional Budget Office, in a forecast issued Dec. 7, estimated the deficit would total $142 billion.
Total revenue rose 12 percent to $149 billion in November.
Individual income receipts in the first two months of the current fiscal year rose 24 percent to $135.7 billion. Corporate income tax receipts were a negative $7.5 billion.
Total spending rose 18 percent in November to $299.4 billion. Payments that would normally have occurred on Nov. 1, 2009, a Sunday, were instead pushed into October, depressing last year’s total and making this year jump in comparison.
More Spending
Spending by the Defense Department rose to $123.2 billion for the fiscal year to date. Outlays by the Social Security Administration rose to $127.3 billion.
Spending by the Department of Health and Human Services, which administers the Medicare and Medicaid programs, increased to $144.5 billion.
Senate leaders this week released an agreement crafted by the White House and Republicans to sustain Bush-era tax rates through 2012, set the estate tax at the lowest rate in 80 years, extend jobless aid and cut payroll taxes by 2 percentage points.
Economists at JPMorgan Chase & Co. in New York projected the compromise will cost the Treasury about $850 billion, with the biggest impact coming in fiscal years 2011 and 2012. In a research note today they forecast the budget shortfall will reach a record $1.5 trillion this year and $1.2 trillion the next compared with $1.3 trillion in the 2010 fiscal year.
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