Finance news. My opinion.

Leaders of the world's biggest developed and emerging nations put banks and investors on notice they will need to hold more capital and reveal more about their holdings, signaling the industry may emerge from the current crisis with less potential for profit.

President George W. Bush and his counterparts from the Group of 20 blamed a looming global recession on imprudent investors who “sought higher yields without an adequate appreciation of the risks.” Supervisors who failed to address the dangers building in markets were also at fault, the group said in its statement after meeting Nov. 15 in Washington.

The leaders are seeking to correct those failures with their new demands, particularly higher capital standards and stronger risk management at banks, hedge funds and credit-rating firms.

“What they're looking to do is to erect a new global financial architecture through improved regulation,” said Peter Hahn, a fellow at London's Cass Business School and a former managing director at Citigroup Inc. “Inevitably more regulation is going to make financial services less profitable and should rein in excessive risk.”

Writedowns and losses totaling $964.6 billion at financial institutions worldwide have triggered a surge in the cost of credit, cutting off access to capital for consumers and companies.

Chief among the changes sought by the G-20 are ways to increase international surveillance of the financial firms whose operations, and problems, cross national borders.

Hold More Funds

Banks that take on more risky structured credit, such as collateralized debt obligations, and securitize loans would need to increase their capital. That would likely limit the amount they can make selling such products.

“They want to enforce a smaller, more prudent banking system,” said Charles Goodhart, a former policy maker at the Bank of England. “If banks are required to hold more capital then clearly the rate of return on it will go down.”

While the leaders promised to “avoid over-regulation,” Mark Cliffe, chief economist with ING Groep NV in London, warns “efforts to make the system more robust may make recovery harder in the short term” if the prospect of tougher rules forces already skittish lenders to retrench even further.

The G-20 also indicated openness to so-called dynamic capital rules, which would oblige lenders to accumulate excess cash during periods of high profit as an added cushion for times when losses increase. Finance ministers were tasked with making recommendations for “mitigating against pro-cyclicality in regulatory policy.”

Capital Levels Dwindled

As banks and securities firms pioneered new products, including subprime mortgage loans and asset-backed securities, their capital levels dwindled compared with historical averages.

A report by the Bank of England last month showed capital ratios at U.S. commercial banks have plunged to less than 10 percent of assets from over half in the mid-19th century.

“There seems to be an inherent tendency for financial systems to cause periods of booms, by building up imbalances, and then to go through busts,” European Central Bank President Jean- Claude Trichet said Nov. 13. “We need to introduce a framework to dampen this phenomenon.”

The framework would include requirements for institutions and large investors, including hedge funds, to provide “complete and accurate disclosure” of their financial conditions, the leaders said, without specifying how that would be provided.

Hedge-fund managers appearing before the U.S. Congress last week largely supported the concept of more disclosure, while arguing against stricter regulation.

`Grave Mistake'

“It would be a grave mistake to add to the forced liquidation currently dislocating markets by ill-considered or punitive regulations,” George Soros, chairman of the $19 billion Soros Fund Management, said Nov credit score. 13.

Just a day after the G-20 authorities suggested they would consider limiting compensation that rewards excessive short-term returns or risk taking “through voluntary effort or regulatory action,” Goldman Sachs Group Inc. announced its seven top executives would forego bonuses this year. Goldman Chief Executive Lloyd Blankfein took home almost $70 million in salary and bonuses in 2007.

The G-20 also urged a “broader policy response” to slumping growth, citing the potential, if not a promise, for more interest-rate cuts and fiscal stimulus. They pledged not to erect protectionist barriers for 12 months and to devise by year-end a way to conclude the Doha round of trade talks.

Rather than take the same steps together, nations should act “as deemed appropriate to domestic conditions,” the leaders said in their statement.

Immediate Action

“There doesn't seem to be harmonization on immediate action to get us through the next quarter,” said Carl Weinberg, chief economist at High Frequency Economics Ltd. in Valhalla, New York. “And that's what matters for markets at the moment, not regulatory changes for the next decade.”

In another move to calm volatility, the G-20 endorsed central clearinghouses for financial derivatives to back trades and absorb losses in case of a dealer failure. That would likely slow the market's growth. Regulators in the U.S. agreed Nov. 14 on rules allowing the first clearinghouse for the $33 trillion credit-default swap market to open by year-end.

“There are certain initiatives on which they can move very quickly,” said John Taylor, a former U.S. Treasury undersecretary and now a professor at Stanford University. “A clearinghouse is something that could be up and running within a month.”

To further protect investors, swaps and other derivatives should be traded on exchanges or electronic-trading platforms, the leaders said, and more disclosure should be required for derivatives traded over the counter.

Unresolved Issues

Left unresolved after the summit is how much power the regulators will have. European leaders, including French President Nicolas Sarkozy and German Chancellor Angela Merkel, pressed for some form of state control over lending practices and investing across borders.

Bush, with only two months before he leaves office, opposed any movement toward a global authority over financial markets. The G-20 did agree that any new rules will be guided by free- market principles.

By pushing off consideration of their recommendations to April, European leaders may be hoping for a more favorable hearing from President-elect Barack Obama. Sung Won Sohn, a professor of economics and finance at California State University Channel Islands, said that may be a mistake.

“Obama may have some differences, but he is expected to subscribe to the basic principle” that there's danger in over- regulation, Sohn said.

The G-20 finance ministers were given until March 31 to come up with plans to implement the proposals. The leaders convene again in April, most likely in London.

G-20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union. The Netherlands and Spain were also represented.

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New York Attorney General Andrew Cuomo is seeking information from the nine largest banks, including Charlotte-based Bank of America Corp, regarding their plans for paying bonuses.

The banks have agreed to accept $125 billion as part of a $700 billion financial bailout package approved by the U.S. Congress. Under the plan, the federal government will buy shares in the banks in a move designed to unfreeze the credit markets.

An additional $125 billion of the $700 billion has been set aside for other financial institutions creditreports.

In a letter sent to the nine banks, Cuomo also asks the boards to explain what mechanisms they have in place to protect taxpayer funds.

Cuomo also requested the information from New York-based Merrill Lynch & Co. Inc. (NYSE:MER), which BofA (NYSE:BAC) is buying in a $50 billion deal. The purchase is expected to close in the first quarter, pending shareholder approval.

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With less than two weeks to go before the presidential election, Democratic nominee Barack Obama has a solid 13-point lead over Republican opponent John McCain in Pennsylvania, according to a new Quinnipiac University poll.

The poll found Obama ahead 53 percent to 40 percent in the Keystone State, compared with 54 percent to 39 percent in Quinnipiac's last poll Oct. 1

The economy is the most important issue for Pennsylvania voters, who trust Obama 54 percent to 36 percent to handle the issue, compared with 55 percent to 36 percent in the previous poll.

“Sen. Obama leads comfortably in Pennsylvania, mostly because he has pulled ahead in the four key suburban counties surrounding Philadelphia where Keystone State races are decided,” said Clay F. Richards, assistant director of the Quinnipiac University Polling Institute.

“Obama is leading among whites and blue collar workers, but white men and 15 percent of Sen. Hillary Clinton’s primary supporters are clinging to Sen. McCain, probably not enough to change the tide in the closing days of the campaign,” Richards added.

Obama also polled higher than McCain in key battleground states Florida and Ohio, the Quinnipiac poll found low fee cash advance. The Illinois senator is up 49 percent to 44 percent over his Republican counterpart in Florida, and leads McCain by an even wider margin — 52 percent to 38 percent —in Ohio.

According to Hamden, Conn.-based Quinnipiac, no one has been elected President since 1960 without taking two of these three states in the Electoral College.

Pennsylvania voters give higher approval ratings for the Democratic nominee for vice president, Joe Biden. Fifty-four percent of likely voters have a favorable opinion of Scranton native Biden, with 22 percent having an unfavorable opinion of him. Only 38 percent of likely Pennsylvania voters had an favorable opinion of Republican vice presidential nominee Sarah Palin; 43 percent had an unfavorable opinion of her, according to the poll.

One area where McCain scored higher than Obama in the Quinnipiac poll was the issue of foreign policy. Asked whom they trust more to handle foreign policy regardless of whom they supported for president, 47 percent said McCain, and 45 percent said Obama.

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Treasury Secretary Henry Paulson and congressional Democrats hammered out a consensus on spending up to $700 billion to rescue the financial industry. There isn't consensus on whether it would work.

Lawmakers reached agreement yesterday as House Republican leaders backed away from opposition to the proposal after it included plans to create insurance for mortgage-backed securities. The House and Senate are scheduled to vote on the bill early this week, although it wasn't clear last night that it has sufficient votes to pass the House.

Giving Treasury authority to buy so many distressed securities from lenders is without precedent, and it's unclear how the government will pay prices that strike a balance between protecting taxpayers and preventing more bank failures.

“This has a reasonable chance of pulling back from the brink and having some success, but it's far from certain that will be the case,'' said former Fed Governor Laurence Meyer, now vice chairman of consultant Macroeconomic Advisers LLC in Washington.

“The markets are going to love it because it's a massive subsidy of shareholders and unsecured creditors,'' said Nouriel Roubini, chairman of Roubini Global Economics and economics professor at New York University. “But you're not resolving the two fundamental issues: You still have to recapitalize the banking system, and household debt is going to stay high.''

U.S. stock futures fell on concern that plan won't avert more failures, with the S&P 500 future for December delivery down 2.1 percent to 1189.30 at 10:35 a.m. in Paris. The dollar gained 1.9 percent against the euro to $1.4342 and treasuries also gained.

Immediate Cash

The bill gives Paulson $250 billion at the start to buy assets, increasing the amount to $350 billion upon “written certification'' from the president that the secretary is “exercising the authority'' to buy assets. The Treasury chief, or whoever succeeds him, may use the remaining $350 billion if Congress fails to reject a request for it within 15 days.

The proposed law lets Paulson buy assets “at the lowest price that the Secretary determines to be consistent with the purposes of this Act.'' The bill doesn't require any specific method for the purchases beyond saying mechanisms such as auctions or reverse auctions should be used “when appropriate.'' Treasury officials declined to discuss how the plan will be implemented.

Democratic and Republican leaders trust that Paulson can avert a collapse after Lehman Brothers Holdings Inc. filed for bankruptcy and the government was forced to take over American International Group Inc. Success hinges on whether he can help banks raise capital after $556 billion in writedowns and losses, and get credit flowing through the economy.

`Far Worse Pain'

“We have clearly seen a run of failures of financial institutions not like anything we've seen since the Great Depression,'' House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, told reporters yesterday. “If we didn't do this, there would be far worse pain in the sense of the lending freezing up.''

“It's a fragile situation,'' Paulson said in an interview on CBS television's “60 Minutes'' program broadcast yesterday. “It's gotta do it, and we're going to make this work.''

The draft legislation was posted on the House Financial Services Committee's Web site yesterday. It includes a provision to give taxpayers equity stakes in the companies that benefit from the plan.

The bill has a section aimed at limiting the pay of executives at companies that take advantage of assistance by prohibiting tax deductions for officials that exceed $500,000, which is half the normal deductible limit payday loans. It also allows “clawbacks'' of money already paid to executives at troubled companies and forbids so-called golden parachutes.

Community Banks

The legislation takes steps to let some 800 community banks that held preferred stock in Fannie Mae and Freddie Mac before the mortgage giants were taken over by the federal government on Sept. 7, make better use of losses for tax purposes than they would otherwise be allowed.

House Republicans offered early resistance to the Paulson plan. They complained that it put the country on the road to socialism and instead argued that elimination of the capital gains tax would spur a wave of investment that would render the bailout plan unnecessary.

House Minority Leader John Boehner of Ohio commissioned Virginia Representative Eric Cantor to draft a rival plan without telling Democrats or Paulson. The plan, which depended on self- funded insurance premiums, was abandoned after Democrats lashed out at Republicans at a White House meeting Sept. 25.

Limited Insurance

Ultimately, Republicans got none of the tax breaks they sought, though the bill includes a limited self-funded insurance program for companies that benefit from the bailout. Last night Boehner, the top House Republican, urged his colleagues to support the bailout plan.

Some House Republicans, such as Representative Mike Pence of Indiana, are still holding out. “We now have a deal that promises to bring near-term stability to our financial turmoil, but at what price?'' Pence said in a letter to colleagues.

Pence called the plan “the largest corporate bailout in American history'' and that it would “nationalize almost every bad mortgage in America.''

Paulson, the 62-year-old former Goldman Sachs Group Inc. chairman, said such a strategy is necessary to stabilize financial markets. “We will have turbulence and turmoil in our financial system for some time, but I believe that this is going to work,'' he said on “60 Minutes.''

`Some Doubts'

Yet as members of Congress and their staffs worked late nights over the past week negotiating and writing compromise legislation, money markets failed to improve. “It just raised some doubts in my mind whether this was going to be sufficient,'' said Meyer, who was on the Fed board when the Asian financial crisis struck in 1997.

Should the plan fail, “there may have to be a more substantial participation by the federal government to buy mortgages,'' Frank said last night. Any alternative proposal would involve “significant purchases directly of the foreclosed mortgages.''

Paulson and Federal Reserve Chairman Ben S. Bernanke, who will be on a five-member oversight board for the program, have signaled that their priority is shoring up the nation's banks even if it means they don't get taxpayers the cheapest prices for the devalued assets the government buys.

The proposal also sets the stage for an overhaul of financial regulation next year, something Frank is already planning. The draft bill requires the Treasury secretary to report to Congress and make recommendations by April 30 on whether to regulate additional participants in the financial markets.

“It'll give us some temporary respite from the earlier pressures,'' said Joseph Mason, a Louisiana State University finance professor who formerly worked in the bank-research division of the Office of the Comptroller of the Currency. “If we don't use that respite to design more permanent policy, we will find ourselves back in the same place.''

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China's central bank governor Zhou Xiaochuan underscored “continuity and stability'' in monetary policy after economists said they detected a bigger emphasis on supporting growth as the economy slows.

July 25 and 27 statements by the Communist Party's political bureau and the central bank didn't use the term “tight monetary policy,'' featured in previous government statements. JPMorgan Chase & Co. economist Frank Gong and Lehman Brothers' Sun Mingchun saw a shift to a more pro-growth policy.

“The central bank mentioned policy continuity and stability,'' Zhou said late yesterday in the western city of Xi'an when asked about the omission. Zhou was speaking after a meeting of East Asia-Pacific central bankers

Weakening export demand because of the U.S. housing slump and an international credit squeeze has stoked concern that growth may slump in the world's fourth-biggest economy, costing jobs and leading to bad loans and sinking profits. Government options to stimulate the economy and protect exporters include loosening bank lending quotas, boosting government spending and restraining gains by the yuan.

Zhou said people should read the statement after the central bank's second-quarter monetary-policy meeting “accurately and comprehensively.''

China is trying to damp inflation that soared to a 12-year high of 8.7 percent in February cash advance usa. Last month's rate was 7.1 percent.

Policy `Fine-Tuning'

Ting Lu, an economist at Merrill Lynch & Co. in Hong Kong, said yesterday that China was “fine-tuning'' economic policy.

Donald Straszheim, vice chairman of Roth Capital Partners, a U.S. investment bank specializing in emerging markets, said it was the biggest policy shift in five years.

The government will slow the pace of currency gains to protect exporters, keep interest rates unchanged and maintain the reserve requirement for banks at a record 17.5 percent of deposits, Los Angeles-based Straszheim said.

China's economy grew at the slowest pace since 2005 in the second quarter. Gross domestic product rose 10.1 percent from a year earlier, down from 10.6 percent in the first quarter, as exports weakened and the government curbed lending.

The Politburo said last week that maintaining growth and fighting inflation were the top priorities for the second half of 2008. It said the nation aimed for “steady and relatively fast'' growth.

The central bank's statement was similar. In its previous quarterly statement, the People's Bank of China said it was sticking with a “tight'' monetary policy.

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Nicholas Financial Inc. (NASDAQ:NICK) has opened it's first branch in Nashville on Gallatin Road in the Rivergate area.

The company acquires and services automobile and light truck installment sales contracts that it purchases from over 1,400 new and used car dealers.

Based in Clearwater, Fla., Nicholas Financial Inc. specializes in subprime auto and truck loans.

With assets of $190 million, the company is one of the largest publicly- traded specialty consumer finance companies based in the Southeast cashadvance.com.

Nicholas Financial has 48 branch locations in both the Southeast and Midwest.

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Edward Kang spent 15 years building textile maker Ever-Glory International into a symbol of China's world dominance in cheap clothes, shoes and toys. With $70 million in annual sales, the company has won customers including Levi Strauss & Co. and Tesco Plc.

With rising labor costs and the yuan's appreciation against the dollar threatening profits, Kang, 45, considered moving from Nanjing, near China's Pacific coast, to the interior to take advantage of a government program to entice businesses into lower-wage provinces. He decided instead to shift 40 percent of his manufacturing capacity to a new plant in northern Vietnam's port city of Haiphong within five years.

The provincial Chinese workers didn't have the appropriate experience, and transportation to distant ports was too expensive, Kang says: “If we cannot meet customers' price expectations, they will say `Bye-bye, Ever-Glory.'''

Thousands of companies are arriving at similar conclusions. With Vietnam, India and other Asian nations mounting aggressive campaigns for foreign investment, a third of the manufacturers in Guangdong province — which produces 30 percent of China's exports — will be closed in three years, according to an April 29 report by Tao Dong, chief Asia economist at Credit Suisse in Hong Kong.

“The end of an era in terms of China's mighty export industry has just begun,'' he said.

Foreign Shores

The factory closures and departures to foreign shores aren't likely to dampen growth in the world's fastest expanding major economy, as China increases its production of higher- value goods — computer chips, electronic gadgets, automobiles.

What it does, in the world's largest Communist country, is increase the disparity between residents in the wealthy coastal areas and the more than 700 million people in inland provinces — more than half China's population — who may find themselves excluded from the country's success story.

“It is absolutely key that China push its development model westward,'' says Stephen Roach, chairman of Morgan Stanley's Asia division in Hong Kong. “The jury's out on whether they will pull it off.''

China's shipments of higher-technology products surged 412 percent since 2002 to 347.8 billion yuan ($47.6 billion) last year, or 28.5 percent of total exports, fueling 11.9 percent growth in gross domestic product. The economy is forecast to expand 10 percent this year and 9.5 percent in 2009, according to 21 economists surveyed by Bloomberg.

Cheap Labor

Growth is concentrated mainly in four provinces on China's southeastern coast: Guangdong, Jiangsu, Fujian and Zhejiang. Clothing, shoe and toymakers there sparked China's manufacturing boom, with much of the initial push coming from foreign companies attracted by cheap labor, easy access to ports and special economic zones that offered duty-free imports and other tax incentives.

China won more than 65 percent of the $792 billion in investment received by 21 Asian countries during the past five years, according to the Asian Development Bank. Such dominance prompted Singapore's founding father, Lee Kuan Yew, to say in 2002 that China is “a vacuum cleaner for foreign direct investment.''

About 90 percent of the money has gone into the coastal southeast, which accounts for 60 percent of the country's total exports. That's helped to double average monthly pay in the Guangdong province city of Dongguan, China's largest manufacturing center, to 2,594 yuan in December 2006 from 1,284 yuan in 2001, according to New York-based CEIC Data, an economic-research firm.

Poorest Regions

So far, the rest of China hasn't shared in the prosperity. Incomes in western China's poorest regions are one-tenth those of the richest areas on the east coast. The average monthly wage for the city of Gansu in the northwest is 1,437 yuan.

To help encourage investment and narrow the disparity, the government adopted a “Go West'' policy in 2000 free credit report and score. It spent 1 trillion yuan through 2005 on 70 major infrastructure programs including a 1,140 kilometer railway to Lhasa, Tibet's capital, according to China's National Development and Reform Commission. In mid-2006, the government added 168 billion yuan for regional airports, hydropower stations and other projects.

Even with the improvements, power failures, substandard roads and congested railways reduced production in 2004 by 9.5 percent in Kunming, the capital of Yunnan province in the southwest, according to a World Bank report. Such issues cut output during the same period only 2.3 percent in Shanghai, on the Pacific coast.

`Fragmented and Inefficient'

The transportation industry remains fragmented and “inefficient,'' Beijing-based World Bank economist Zhao Min wrote in a recent report. Better integration of rail lines, waterways and roads “could considerably reduce'' costs and increase “the competitiveness of the interior regions,'' she said.

Other disadvantages: The expense of setting up a business in the inland southwest is nearly three times higher than in the coastal southeast, and obtaining credit takes more than twice as long, according to the World Bank in “Doing Business in China 2008.''

The yuan's 4.45 percent rise against the dollar in the first four months of 2008, nearly twice the rate of last year's appreciation, is also eroding profits because China's exports are priced in dollars. The currency climbed 7 percent in 2007.

Investment Intentions

Foreign companies announced last year that they intend to invest $11.6 billion in central and western China, up 30 percent from $8.9 billion in 2003, according to Belfast-based FDI Intelligence, a provider of data on foreign direct investment. That's well below companies' investment intentions for Vietnam, which totaled $40.1 billion in 2007, up 354 percent from 2003, and for India, which rose 174 percent to $52.6 billion, FDII said.

Zhejiang Hefeng Shoes Co., with one factory in Zhejiang province employing 1,000 people, is examining relocation options that include Vietnam, according to export manager Ray King. “Customers say our prices are crazy,'' he says. “They always say other suppliers in Vietnam and Thailand are cheaper.''

Vietnam and India have become more aggressive in luring low-cost industries. Vietnam joined the World Trade Organization in 2007, giving it greater access to world markets. PricewaterhouseCoopers last July ranked it as the most competitive destination for manufacturing businesses among the world's top 20 emerging markets; China was second.

Low Wages

Vietnam's laborers earn an average of 1.669 million dong ($104) a month, 41 percent less than China's lowest-paid workers in the central province of Jiangxi, according to World Bank data.

India's wages are lower than Vietnam's, averaging 3,843 rupees ($87) a month, according to CEIC. India is copying China's special economic zones, building more than 400 that will provide low-cost land and rents, five- to 10-year tax breaks and duty-free imports.

It has been a member of the WTO since Jan. 1, 1995, and ranked 7th in the PricewaterhouseCoopers report, behind Vietnam, China, Poland, Chile, Malaysia and Thailand.

The labor-cost comparison became even more favorable for Vietnam and India in January, when a new Chinese labor law required companies to pay minimum wages and severance pay. The law contributed to a 22 percent increase in labor costs during the past year, according to the Federation of Hong Kong Industries.

The absence of such laws “anchored China's status as the world's factory,'' Tao said in the Credit Suisse report. That advantage “has gone overnight.''

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Australia's central bank raised its inflation forecast and said economic growth will slow as consumers reduce spending amid record gasoline prices and the highest borrowing costs in 12 years.

There “is evidence that demand has slowed, but it will take some time for this to have a substantial impact on inflation,'' the Reserve Bank of Australia said in its quarterly policy statement released in Sydney today. Inflation will peak late this year at 4.5 percent before falling below the bank's 3 percent limit in 2010.

The nation's currency fell on speculation Governor Glenn Stevens will refrain from interest rates again this year, after boosting its benchmark to 7.25 percent in March, the fourth increase in seven months. The government has said it will cut spending in next week's budget to ease pressure on prices, which surged at the fastest pace in 17 years in the first quarter.

“The Reserve Bank remains on hold for a prolonged period,'' said Rory Robertson, an interest-rate strategist at Macquarie Group Ltd. in Sydney. “Right now they've got reasons to think they have done enough, but obviously there are risks, particularly with the commodity price boom being so large.''

The Australian dollar pared earlier gains, falling to 94.03 U.S. cents at 4:34 p.m. in Sydney from 94.41 cents immediately before the report. The two-year government bond yield declined 5 basis points, or 0.08 percentage point, to 6.37 percent.

China Demand

Rising demand from China for resources including iron-ore and coal may offset the impact of slower domestic spending on the $1 trillion economy, now in its 17th year of expansion.

“It is possible that the recent weakness in consumer sentiment and domestic spending will prove to be mostly temporary, especially in light of the large boost to national income'' from exports, the bank said today.

The nation's terms of trade, a measure of export income, will rise by around 20 percent this year as new coal and iron ore contracts take effect, “well above the average increase over the past four years, and higher than appeared likely a few months ago,'' the central bank said.

Demand for exports is prompting companies including Rio Tinto Group to spend A$57.9 billion ($54 billion) developing mines and oil fields, stoking a record 18-month employment boom that has generated 456,000 new jobs.

Skills Shortage

Australia's labor market conditions “remained strong,'' today's report said, reinforcing figures published yesterday showing employment rose in April by twice as much as economists forecast. The jobless rate was 4.2 percent last month, close to the lowest in more than three decades.

Concern that a shortage of skilled workers is driving up wages and stoking inflation was a key reason Stevens and his board raised borrowing costs in March, February, November and August faxless payday advances.

There is a risk that expectations for higher inflation may become “entrenched at higher than acceptable levels,'' driving up wages and prices, the bank said today.

Core annual inflation surged to 4.4 percent in the first quarter from 3.8 percent in the previous three months, a report showed on April 23. The bank aims to keep annual prices increases between 2 percent and 3 percent on average.

“The high rate of underlying inflation in the March quarter indicates that demand pressures that have been evident for some time are continuing to have a significant effect on pricing, and are allowing increases in input costs to be passed through into final prices,'' today's report said.

Growth Forecast

The jump in consumer prices has occurred “in an environment of limited spare capacity and earlier strong demand,'' the bank said. “A significant slowing in the growth of demand from the rapid pace of 2007 will be needed in order to return inflation to the target over time. There are signs that such moderation is now occurring.''

The central bank cut its forecast today for growth in June 2009 to 2.75 percent from the 3 percent predicted in February. Gross domestic product will expand 2.5 percent in June 2010, compared with a previous outlook of 3 percent.

Recent reports support the central bank's view that the nation's economy is losing momentum. March home-building approvals fell six times as much as economists forecast, sales of newly built houses dropped for a second month, consumer confidence plunged in April to the lowest since 1993, and companies remained pessimistic for a third month in March.

Mortgage Rates

GDP slowed to 0.6 percent in the fourth quarter from the previous three months, when it expanded 1.1 percent. The first- quarter GDP report will be released on June 4.

Households, grappling with higher gasoline and food costs, are also facing extra increases in mortgage rates by commercial banks. The nation's five largest lenders, led by Commonwealth Bank of Australia, have added an average of almost 90 basis points, or 0.9 percentage point, to home-loan interest rates this year. The Reserve Bank has added only 50 basis points in that time.

“A noticeable restraining impact is being exerted on household and business borrowing and on all overall domestic demand,'' today's report said. Borrowing by companies has slowed significantly, it said.

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Chemed Corp. shares dropped 19 percent to close at $32.75 each after the company missed first-quarter earnings expectations and cut its profit outlook for the year.

Chemed blamed "recessionary pressures" for weaker results in its Roto-Rooter plumbing and drain-cleaning subsidiary. It now expects earnings of $3.05 to $3.20 per share in profits from continuing operations in 2008, down from an earlier forecast of $3.60 to $3.70 per share.

Chemed posted net income of 16.8 million, or 69 cents per share, in the three months ended March 31. That's slightly better than last year's profit of 62 cents per share, but short of the 85 cents that Wall Street analysts were projecting no teletrak payday loans. Sales increased 5.5 percent to $285.3 million for the period.

"The first quarter of 2008 clearly indicates recessionary pressures impacting demand for certain plumbing and drain-cleaning services," said a Chemed press release. "This is evidenced by an 11 percent decline in aggregate call volume tracked in Roto-Rooter's two centralized call centers."

Chemed (NYSE:CHE) is a Cincinnati-based holding company for Roto-Rooter and Vitas Healthcare, a hospice provider.

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Biogen Idec Inc. confirmed reports that billionaire investor Carl Icahn has filed a lawsuit against the Cambridge biotech company as a ploy to gain access to documents related to the failed sale of Biogen last year.

Icahn, a major shareholder in Biogen who has advocated for its sale, claimed in the suit filed in Delaware that Biogen executives sabotaged the sale process, and he wants copies of board minutes and other papers, according to published reports.

Biogen (Nasdaq: BIIB) ended its search for a buyer of the company in December 2007 after it received no serious offers freecreditreport.

"Our belief is that this request is simply another in a series of manipulative tactics to advance his single-minded agenda to force the sale of the company," said Biogen spokeswoman Naomi Aoki. She argued that Biogen has already made public most of the information requested by Icahn in the lawsuit.

With 4,300 workers worldwide, Biogen reported 2007 net income of $638.2 on revenue of $3.2 billion.

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