Despite Slowing Economy, Fed in No Hurry to Act

The economy is growing more slowly than last quarter, but probably not enough to push the Federal Reserve into action next week.

U.S. gross domestic product, the value of all goods and services produced, grew at a pace of 1.5 percent in the second quarter, down from a revised 2 percent in the first quarter.

Traders had been watching to see if the number, reported Friday, would signal a growth scenario that would encourage the Fed to be more aggressive at its two-day meeting next week.

“It’s not an emergency. I think they’ll be inclined to wait for September,” said Peter Fisher, head of BlackRock’s Fixed Income Portfolio Management Group. Fisher said he expects the economy to have been growing at about 2 percent and, all told, that’s what the data and revisions show.

Fourth-quarter growth was revised from 3 percent to 4.1 percent, and the revisions show that 2011 was slightly better than thought. The first quarter was raised by 0.1 percent.

“There’s no news here,” Fisher said.

NY Fed Told of Interest Rate Manipulation in ‘07

The Federal Reserve Bank of New York released documents Friday that show it learned five years ago of big banks understating their borrowing costs to manipulate a key interest rate. The documents also show Treasury Secretary Timothy Geithner, who was then president of the New York Fed, urged the Bank of England to make the rate-setting process more transparent.

A congressional panel requested the documents and is investigating manipulation of the London interbank offered rate (LIBOR) rate, which affects interest people pay on loans.

The process for setting LIBOR has come under scrutiny since Britain's Barclays bank admitted two weeks ago that it had submitted false information to keep the rate low. In settlements with U.S. and British regulators, the bank agreed to pay a $453 million fine. The LIBOR rate is little-known outside the financial industry. But it provides the architecture for trillions of dollars in contracts around the world, including mortgages. A British banking trade group sets the rate every morning after international banks submit estimates of what it costs them to borrow money.

The documents show correspondence from Barclays bank to the New York Fed in 2007 indicated some major banks may have been trying to rig the rate.

Then in April 2008, an employee of Britain's Barclays told the New York Fed the bank had underreported its borrowing costs to keep the key interest rate low. The employee explained that Barclays was understating its borrowing costs because other big banks were doing the same.

"So, we know that we're not posting um, an honest LIBOR," the Barclays employee says, according to the transcript of the April 2008 telephone call. "And yet we are doing it because um, if we didn't do it ... it draws, um, unwanted attention on ourselves."

Existing Home Sales Constrained by Tight Supply in May, Prices Gain

Limited supplies of housing inventory held back existing-home sales in May, but sales maintained a strong lead over year-ago levels and home prices are on a sustained uptrend in all regions, according to the National Association of Realtors®.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 1.5 percent to a seasonally adjusted annual rate of 4.55 million in May from 4.62 million in April, but are 9.6 percent above the 4.15 million-unit pace in May 2011.

Lawrence Yun, NAR chief economist, said inventory shortages in certain areas have been building all year. "The slight pullback in monthly home sales is more likely due to supply constraints rather than softening demand. The normal seasonal upturn in inventory did not occur this spring," he said. "Even with the monthly decline, home sales have moved markedly higher with 11 consecutive months of gains over the same month a year earlier."

There are broad-based shortages of inventory in the lower price ranges in much of the country except the Northeast, and in the West supply is extremely tight in all price ranges except for the upper end. "Realtors® in Western states have been calling for an expedited process to get additional foreclosed properties onto the market because they have more buyers than available property," Yun added. Widespread inventory shortages also are found in much of Florida.

Total housing inventory at the end of May slipped 0.4 percent to 2.49 million existing homes available for sale, which represents a 6.6-month supply at the current sales pace; there was a 6.5-month supply in April. Listed inventory is 20.4 percent below a year ago when there was a 9.1-month supply. Unsold inventory has trended down from a record 4.04 million in July 2007; supplies reached a cyclical peak of 12.1 months in July 2010.

"The recovery is occurring despite excessively tight credit conditions and higher downpayment requirements, which are negating the impact of record high affordability conditions," Yun said.

How John Adams and Ben Franklin Helped Independence Day

When hearing about Independence Day and the Declaration of Independence, little is said about two of the founding fathers, John Adams and Ben Franklin. These two are known in history for other accomplishments. But without the hard work and dedication to a different way of life that these two founding fathers had, we might not be celebrating Independence Day.

John Adams fought for our country’s independence, and in spite of the hard battles ahead he never wavered in his support of our nation becoming free from Britain’s rule. Because of how dedicated he was to our nation becoming free, John Adams risked being executed. He was considered a traitor to the Crown (England). John Adams risked everything, including his life, to see our nation become independent, which is why we celebrate the Fourth of July.

John Adams was actually a delegate to the Continental Congress, which was one of the hardest jobs he could have faced in 1776. In 1776 John Adams was trying to convince some of his fellow delegates that America would be better off separated from England. During this time that was not an easy job because the American Revolution was in full swing, and many people were against opposing England; they felt it would be better to stay part of England rather than branch out on their own. But John Adams was finally able to convince all twelve of his fellow delegates that becoming independent was the best course of action. On July 4, 1776 there was a unanimous vote to make America an independent nation by adopting the Declaration of Independence.

Ben Franklin is another founding father of the Declaration of Independence and played a major role in getting the Declaration of Independence approved and adopted by the Continental Congress. Ben Franklin’s mission was to secure France’s help, both financially and militarily, in America’s fight against Britain. In the end, he almost single-handedly was able to convince France to join America. Luckily Ben Franklin was successful, which helped the colonies win the war against Britain.

Both John Adams and Ben Franklin were two of the five people who were asked to write and consult on the Declaration of Independence. And because of their hard work and dedication to the Declaration of Independence we are able to celebrate the Fourth of July every year. In fact John Adams predicted that every year after the Declaration of Independence was signed people around the United States would celebrate with fireworks, music, toasts, speeches, etc. And he was completely correct.