WASHINGTON - (08/11/04) -- The Federal Reserve ignoredindicators of a short-term cooling of the economy and continued itsstrategy Tuesday aimed at slowing economic growth by liftingshort-term interest rates. The Fed added another 25 basis points(0.25%) to the target rate for overnight Fed Funds, just five weeksafter adding 25 bps, bringing the benchmark rate for short-termlending to 1.50%. Tun Wai, chief economist for NAFCU, said hebelieves the Fed raised the rate in the face of last week'sdisappointing jobs report because the Central Bank had alreadyindicated it planned to raise rates over the next few months and tochange course would have sent negative signs to the markets. BillHampel, chief economist for CUNA, agreed. "It would have signaled alack of confidence in the economy," Hampel told The Credit UnionJournal, adding that a 25 bps rise in rates is not expected to havea major impact. But, Hampel suggested that if there is weak jobgrowth over the next two months then the Fed may re-think its plansand hesitate in raising rates again when it meets in September toreview interest rates.
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The Cleveland-based bank is projecting steady growth in net interest income even as credit losses remain manageable. But Chairman and CEO Chris Gorman also said that he thinks a recession is likely.
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The first-quarter increase involved commercial real estate loans, including some problematic multifamily loans and an office credit, but none of the criticized loans were to consumers, officials at the Dallas company say. Further CRE deterioration is anticipated.
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The Detroit-based company is exploring ways to make more consumer auto loans without running afoul of stricter capital standards that are expected from the Federal Reserve. Possible approaches include more securitizations and the use of credit risk transfers.
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The House Financial Services Committee also sent to the full House two bipartisan bills, including one that would prevent large banks from opting out of having to recognize Accumulated Other Comprehensive Income in regulatory capital.
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Charge-offs and nonperforming loans rose at the Georgia bank in the first quarter. But it blamed the problem on one large client and said the matter has been resolved.
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Amid healthy first-quarter loan growth and improving credit quality, Discover Financial Services slashed its profits by $800 million to offset remediation costs from a 16-year period when it overcharged certain merchants.
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