TOP STORIES -- June 27 - July 2
Fed Raises Key Interest Rate to Stem Inflation
The Federal Reserve raised its key short-term interest rate a quarter of a point, to 1.25%, and promised further rate hikes at a “measured” pace.
Policymakers had so successfully telegraphed their plan to raise rates that long-term interest rates, which are determined by the marketplace, actually dipped after the news of the first Fed increase since May 2000.
As a result, many consumers won’t feel too much of an immediate additional pinch, analysts said.
However, the decision to raise the federal funds rate -- what banks charge one another for overnight loans -- will result in noticeably higher borrowing burdens for consumers with enormous debts on credit cards, home equity loans or other variable-rate loans. Banks and other lenders followed the Fed hike by raising their so-called prime lending rates to 4.25% from 4%. Home equity loans, variable-rate credit cards and some other personal loans are usually tied to the prime rate.
*
Job Growth Slows Dramatically in June
U.S. employers added a net 112,000 jobs in June, less than half what had been expected and too few to budge the nation’s 5.6% unemployment rate.
The Labor Department’s announcement Friday of the weak jobs showing left President Bush ad-libbing his way through a gala White House event called to showcase what aides had thought would be closer to a 250,000-job gain.
The disappointing employment performance convinced some investors that the economy might not be that strong after all. Bond yields tumbled and stock indexes fell modestly. Though the report fueled anxiety about the economy, it also lessened fears that policymakers would rapidly raise interest rates.
Still, the June number was positive, and it came on the heels of several reports, including one on consumer confidence, that suggested that Americans see the job market as improving. Some analysts, in fact, saw the latest jobs number as a fluke.
*
U.S., Mexico Sign Pact on Social Security
Mexican workers in the United States and American workers in Mexico would be able to transfer social security benefits across national borders under a pact signed by both countries.
The deal will have limited effect, at least initially, because it excludes the estimated 6 million to 8 million Mexicans employed here illegally. But the agree- ment could have greater consequences if immigration reforms are adopted to relax rules for Mexican workers here.
The pact allows workers to transfer social security credits earned across the border to their home country. In addition, workers would have to contribute to only one system at a time.
*
Supreme Court OKs Foreign Abuse Suits
The U.S. Supreme Court ruled that foreigners can file lawsuits in American courts to address some abuses overseas, a decision legal experts said might provide an opening for human rights cases filed against Unocal Corp. and other companies.
By a 6-3 vote, the justices said the Alien Tort Claims Act of 1789 permits foreigners to sue in the United States for violations of certain international laws. The decision was the court’s first major ruling on the obscure law that has been used successfully by Holocaust survivors and relatives of people tortured or killed under dictatorships overseas.
Business groups had hoped the Supreme Court would eliminate the use of U.S. courts to enforce international law. But they applauded the decision nonetheless, asserting that it would sharply curtail such suits.
Human rights advocates also claimed victory, saying that suits alleging corporate complicity in crimes such as summary execution, torture and slavery were exactly the type of international standards the court cited.
*
Hotel Workers Reject Management’s Offer
Union hotel workers overwhelmingly rejected the latest contract offer from nine prominent Los Angeles-area hotels, labor sources said, setting the stage for a new level of maneuvering in the dispute.
Hotel managers said the rejection of their offer would trigger changes in company health insurance that would require employees to contribute for the first time, at $40 a month.
Both sides appeared inflexible on the core issue that separates them: the contract’s duration. The union wants a two-year contract that ends in 2006, part of a strategy to line up expiration dates in 10 major U.S. cities that year, giving the union the power to call a national strike.
Hotel negotiators, who are pushing for a five-year contract, have said they would never agree to a two-year deal.
*
United Airlines Rejected Again on Loan Backing
The U.S. government swiftly rejected the final plea by United Airlines and its parent, UAL Corp., for a $1.1-billion loan guarantee to help it emerge from bankruptcy.
United’s employees made sizable wage and benefit concessions in the last two years, and now further job reductions could be in the offing, analysts said.
Additional givebacks could be especially acute in California, where United has more employees -- 16,300 -- than in any other state. The carrier has 814 daily flights and 26 destinations in California and is the busiest airline at the Los Angeles and San Francisco international airports.
UAL, based in suburban Chicago, said it was disappointed by the decision and would take actions “to further reduce costs and improve revenue.”
*
Movie Industry Gets a New Top Lobbyist
Jack Valenti, the silver- tongued lobbyist who served for nearly four decades as Hollywood’s voice in Washington, announced that he would be succeeded by former Agriculture secretary and congressman Dan Glickman as head of the Motion Picture Assn. of America.
In his new role as the MPAA’s president and chief executive, Glickman, 59, gets one of Washington’s plum lobbying posts, estimated to pay nearly $1.5 million a year.
Valenti said Glickman’s extensive experience negotiating trade deals as President Clinton’s Agriculture secretary was a major consideration in the selection, given the MPAA’s push for international laws governing digital piracy and trade policies. Specifically, Valenti cited Glickman’s efforts in helping farmers get their products into China.
*
Jackson Incident May Cost CBS $550,000
The Super Bowl breast flash could end up costing CBS $275,000 a second, making one of the big game’s commercials look like a bargain.
Federal Communications Commission Chairman Michael K. Powell has proposed fining the Viacom Inc.-owned network $550,000 for airing Janet Jackson’s naked right breast for two seconds at the end of her halftime duet in Houston with Justin Timberlake.
Powell’s recommended fine probably would hit each of the 20 TV stations directly owned and operated by CBS with a $27,500 bill.
An agency official confirmed that the chairman was seeking approval of the fine from the agency’s four other commissioners. Sources said it might be several weeks before the proposal was acted on.
*
Time Warner Enters Bidding for MGM
Time Warner Inc. has come up with a preliminary bid for Metro-Goldwyn-Mayer Inc., though it has yet to finalize either the price or other key details, people familiar with the negotiations between the two said.
MGM sources have in the past said that they believe buyers would pay $5 billion for the legendary Los Angeles studio. But Time Warner executives, including Chairman Richard Parsons, have privately made it clear that they think that would be a very rich price.
Officials with Time Warner and MGM declined to comment.
Time Warner, which would make any such purchase with stock, held talks with MGM last year, but they were called off. The negotiations resumed recently when Sony Corp.’s effort to acquire the studio began to stall as the Japanese electronics company struggled to come to terms with its equity partners over the structure of a possible deal.
*
Intel Targets AMD With Upgraded Chip
Chip maker Intel Corp. filled a gap in its lineup by introduc- ing a microprocessor for big server computers and industrial-strength desktop workstations that would compete head to head with the increasingly popular Opteron chip from Advanced Micro Devices Inc.
Opteron has made inroads since its introduction in April 2003 because it can process 64 bits of information at once yet also operate in the standard 32-bit mode. Vendors including IBM Corp., Hewlett-Packard Co. and Sun Microsystems Inc. soon began putting Opteron in their servers, allowing customers to continue using their huge libraries of 32-bit programs as they migrate to the 64-bit standard.
Intel had been selling one chip, Itanium, for running 64-bit applications and another, Xeon, for 32-bit programs.
The Santa Clara, Calif., company recently reconfigured Xeon to add 64-bit extensions, making it work like Opteron, and the revamped Xeon chips are available in new workstations and are expected to be in servers soon.
*
For a preview of this week’s business news, please see Monday’s Business section.
