IMF Presents Brighter Outlook for U.S. Economy

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1 IMF Presents Brighter Outlook for U.S. Economy - WSJ.com 第 1 頁, 共 3 頁 2008/6/25 June 21, 2008 IMF Presents Brighter Outlook for U.S. Economy By TOM BARKLEY June 21, 2008; Page A2 The International Monetary Fund presented a rosier outlook for the U.S. economy this year and next but said financial-sector troubles and accelerating inflation continue to challenge policy makers. In its annual review of the U.S. economy, measuring growth on an average basis for 2008 as a whole, the IMF raised its growth forecast Friday to 1.1%. It increased its 2009 estimate to 0.8%. DOW JONES REPRINTS This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit: See a sample reprint in PDF format. Order a reprint of this article now. Forecasts released by the IMF in April, predicting only 0.5% growth this year and 0.6% in 2009 in the U.S., drew criticism from U.S. officials and even the World Bank. The revisions followed a stronger-than-expected preliminary reading for a 0.9% growth rate in the first quarter. IMF staff said that when measured fourth-quarter over fourth-quarter, U.S. gross domestic product wouldn't grow at all this year, adding growth would revive only gradually to reach 2% in The IMF had a previous estimate of a 0.7% decline in It also bumped up its growth forecast for 2009 from the previous estimate of 1.6%. "It seems to my colleagues and myself that all things considered, that the U.S. economy has held up well. It seems to have avoided the sort of hard landing that generally has followed hard shocks," said John Lipsky, first deputy managing director at the IMF. "We expect growth to remain weak through 2008 and recovery gradually next year, in a slower path of growth that is often typical in recoveries," Mr. Lipsky said, adding that the economy still hasn't felt the full effect of tight credit conditions and high commodity prices. In the report, the fund applauded the "rapid and innovative responses" by the U.S. to the financial crisis but warned that the outlook remains

2 IMF Presents Brighter Outlook for U.S. Economy - WSJ.com 第 2 頁, 共 3 頁 2008/6/25 "highly uncertain." Recent rate cuts by the Federal Reserve have resulted in a policy conducive to an economic recovery, and "a risk-management approach would suggest that policy should be on hold," the IMF said. Still, while inflation is expected to remain under control "as commodity prices peak and economic slack rises," the report noted that inflation expectations are already edging higher. Mr. Lipsky said that because it is difficult to reverse a rise in inflation expectations, the Fed may need a "vigorous response" in reversing the recent easing once the economic recovery is firmly in place. In May, U.S. consumer prices posted their highest year-over-year gain since January, at 4.2%. The IMF expects inflation to rise 4% this year before falling back to 2% by the end of On fiscal policy, any additional economic stimulus should be targeted at the housing and financial sectors, the fund said, citing longer-term budget pressures such as the cost of the Iraq war and growing requirements of entitlement programs. The IMF backed housing legislation the Democratic-controlled Congress is pushing to expand the role of the Federal Housing Administration's mortgage-insurance program to help struggling homeowners refinance to more affordable mortgages. The White House has threatened to veto the bill containing that provision, which the Senate is debating. "Policies need to be mindful of moral hazard, but further action to limit avoidable foreclosures is justified by risks that house prices could fall below equilibrium," the report said. The fund said that stronger incentives may be required to encourage lenders to adopt the program. It also supports changes in the bankruptcy law, proposed by some Democrats, that would let judges write-down the principal on mortgages. Write to Tom Barkley at tom.barkley@dowjones.com 1 URL for this article: Hyperlinks in this Article: (1) mailto:tom.barkley@dowjones.com

3 IMF Presents Brighter Outlook for U.S. Economy - WSJ.com 第 3 頁, 共 3 頁 2008/6/25 Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at or visit RELATED ARTICLES FROM ACROSS THE WEB Related Articles from WSJ.com Contraction possible in Germany Jun. 25, 2008 India Steps Up Inflation Fight as Prices Jump Jun. 25, 2008 Ranks of Rich March From West to East Jun. 25, 2008 This Bud's for Whom? Jun. 23, 2008 Related Web News IMF's Best Guess Is a Gradual U.S. Recovery - FOXBusiness.com Jun. 21, 2008 msn.foxsports.com IMF says US economy on the mend, slowly Jun. 20, 2008 news.yahoo.com Mixed trading in energy sector as crude futures drop nearly 2% Jun. 13, 2008 marketwatch.com More related content Powered by Sphere /** **/

4 Today's Markets - WSJ.com 第 1 頁, 共 3 頁 2008/6/21 TODAY'S MARKETS By PETER A. MCKAY June 20, :09 p.m. EDT Credit, Crude Again Haunt Stocks June 20, :09 p.m. No matter how hard it tries, the stock market seems unable to shake its worry over rising oil prices and the continuing fallout from the credit crisis. Stocks tumbled to levels not seen since mid-march on Friday, all but erasing a rally that commenced after the shotgun marriage of Bear Stearns to J.P. Morgan Chase. Oil futures rebounded as investors rethought a deep selloff a day earlier. DOW JONES REPRINTS This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit: See a sample reprint in PDF format. Order a reprint of this article now. The Dow Jones Industrial Average slid points, or 1.8%, to , in the first close below for blue chips since March 17. Twenty-nine of the Dow's 30 components ended lower Friday, with Coca-Cola the only exception, rising 0.3%. On the year, the Dow is down 11%. MARKETS ON THE MOVE 1 Track indexes and hot stocks 2, with roll over charting and headlines. Plus, comprehensive coverage of bonds, commodities and forex. Markets Data Center highlights: Most Actives 3, Gainers 4, Losers 5 New Highs and Lows 6, Money Flows 7 Intraday Futures 8 and Currencies 9 The S&P 500 fell 1.9%, or points, to , down 10% on the year. The broad measure has fallen 7.6% from its May high and is slumping ever closer to the 1300 level, below which it hasn't closed since March 19. The index closed above 1400 just 15 days ago, ending at on June 5. The Nasdaq Composite Index slid 2.3%, or points, to , down 9.3% on the year. A long hoped-for rebound in financial stocks appeared to fall further away on Friday. Shares of major banks and broker-dealers continued to drive downward after Moody's late Thursday downgraded the credit ratings of the top two bond insurers and Wall Street analysts continued to express worry that lenders of all sizes face diminishing earnings prospects and may have to pare dividends. "The perception was that the financials would start to turn things around by this point," erasing the biggest drag on corporate earnings in recent quarters, said analyst Ashwani Kaul of Thomson Reuters. "That turnaround hasn't happened." MBIA shares slid 12.7% and Ambac declined by 4.9% after Moody's slashed its ratings on the firms by three notches. S&P made similar moves earlier this month, but those actions appeared to cause little commotion in the markets. By contrast, Moody's decision appeared to shake investors out of complacency. Merrill Lynch, which has large exposure to debt backed by the monolines, tumbled 4.4%.

5 Today's Markets - WSJ.com 第 2 頁, 共 3 頁 2008/6/21 Shares of Merrill's rivals also tumbled. Morgan Stanley, which reported weak second-quarter earnings on Wednesday, dropped 3.8%. Lehman Brothers Holdings fell 1.1% and Goldman Sachs Group dropped 1.7%. Financial stocks broadly are now trading at their lowest levels in five years. Another ratings move hit the stocks of auto makers. S&P signaled it is likely to cut the credit ratings of General Motors, Ford Motor, and Chrysler as the Big Three struggle with declining sales amid surging fuel prices. S&P also said it is worried about the companies' cash flows. GM shares tumbled 6.8% on the news, while Ford was down 8.1%. Chrysler is majorityowned by the private-equity firm Cerberus Capital Management. The U.S.-traded shares of Daimler AG, the German auto maker that retains a 20% stake in Chrysler, were recently down 1.9%. According to Thomson Reuters data, analysts now expect aggregate earnings at S&P 500 companies to be down 9% for the soon-to-end second quarter, led by a 53% swoon in financial-sector earnings. Estimates have fallen sharply since the quarter began on April 1, when analysts were expecting a 2% drop in S&P earnings and a 31% decline in the financial sector. All of the S&P's sectors traded lower on Friday, led by a 3.4% drop in its consumerdiscretionary category, which tends to suffer whenever investors fret that high pump prices will divert spending from other goods and services. Oil prices jumped $2.69, or 2%, to $ a barrel in New York after The New York Times reported that Israel this month carried out an airborne military exercise that U.S. officials said looked like a "rehearsal" for a potential attack on Iran's controversial nuclear facilities. Traders fear Iran, a major oil producer, could curtail production or shipments of crude in any confrontation with Israel. Friday's rally is the second time this month that worries about conflict between Israel and Iran prompted a bump in crude prices. On June 6, futures leapt more than $10 after a senior Israeli government official described strikes against Iran as "inevitable." Airline stocks, which have suffered from high fuel costs in recent months, were hard hit as oil climbed. Continental Airlines and UAL dropped sharply after surging Thursday on the announcement of a wide-ranging marketing pact. The carriers finished down 8.9% and 11.7%, respectively. Heavy users of energy are likely to continue to suffer in the months ahead, since U.S. refinery capacity remains constrained, with production of fuel oil and other distilled products especially limited. Even if overseas producers like Saudi Arabia increase production, as many analysts expect, the prices of those fuels could stay high as the lack of new refining capacity in the U.S. acts as a bottleneck, said independent energy economist Philip Verleger. "No one has bothered to diagnose these problems, which have been developing for a long time," said Mr. Verleger. "It's a disaster." The dollar fell against euro, yen, and British pound. The U.S. Dollar Index, which measures the currency's value against a basket of six major foreign denominations, was off 0.6%, or 0.47 point, at

6 Today's Markets - WSJ.com 第 3 頁, 共 3 頁 2008/6/21 Treasury prices rose as investors sought safe havens. The two-year note gained 4/32 to yield 2.883%. The benchmark 10-year note rose 11/32 to yield 4.164%. The 30-year bond gained 19/32 to yield 4.722%. Write to Peter A. McKay at peter.mckay@wsj.com 10 URL for this article: Hyperlinks in this Article: (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) mailto:peter.mckay@wsj.com Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at or visit RELATED ARTICLES FROM ACROSS THE WEB More related content Powered by Sphere