ning sponsoredy wpbt >> paul: the feder reserve has pumped hundreds of bilons of dollars in the economy. but the fed chairman says e recory still has a long way to go and now is not thtime to tighten monetary policy. >> suzanne: terpillar's latest results weret much to write ho about but it's improved outlk helped boost the market. coming up, a look at what th latest flood of rnings says abouthe economy. >> sunshine ishe best disinfecnt and it will discoura and deter bad bevior. >> paul: the special insctor general overseei the $700- billn tarp bailout fund tells wmakers transparcy is needed now. >> suzannethen, apple shines, posting a 15% jump in profs as i-phones and mac computs

continue to fly off stor shelves, even in aecession. >> pau i'm paul kangas suzanne: and i'm suzanne pratt. sue gharib is off tonight. this is "nightly busins report" for tuday, july 21. "nightly business port" is madpossible by: this pgram was made possible by conibutions to your pbs station from viewers likyou. thank yo 7//& >> suzanne: od evening everyo. the federal reserve is not de yet helpg to fix the u.s. economy, that is. that was chairman bebernanke's messagfor congress today, saying t fed intends to keep

interest rates low and cret easy for quote an extended period. bernanke said it'she right licy, even though the econom is showing quote tentative sns of stabilizati. the chaian also reassured investors the central bank h an exit strategy rdy to go once it's me to reverse its easy money poly. darren gersh elains. >>eporter: always cautious, the federal reserve checking out thexits in case of an inflation emergency. a mp in prices would require the fed tonwind the $600 billion it has pumd into the economy. but chairman b bernanke de it clear hand his colleagues are not expecting put an exit strate into action for "an extended period of time." vince reinhart is a former senior staff at the fed. he says the ceral bank won't rae interest rates or tighten cred until it believes a durable economic rovery is under wa >> ty don't have that evidence yet, and they are trng to send a signal to push back agait market participants o are

expecting too quick a rn in monetary picy. >> reporter:es, banks are looking beer and markets stronger, but bernankeautioned the recovery he pects later this year will be tepid and rising unemployment mains a major coern. >> job insecurity, togher with deines in home values and tight credit, is likely to lit gains in consur spending. the possibility th the recent stabilizion in household spending will ove transient is an importa downside risk to the outlook. >>eporter: so why all this talk aboutn exit strategy? so analysts are concerned abouall the cheap credit the fed has pumpednto the financiasystem. banks are now lding a lot of that cash in resves which coulcome roaring into the onomy in the form of new lending once growth rerns. that could mean high inftion and a new bule. bernanke sd three features of the fed's exit straty should keep thafrom happening. first,he fed charges a premium for some of its leing, and as marks have returned to normal,

banks have sout cheaper sourceof cash. second, the fecan effectively y banks more to keep reserve with the fed, ducing the incente to make new loans. and third, the fed c buy and sell securities, a tecical tool it uses to keep inftion in check. >> so do have a number of tools to do it, and 're quite awe of this issue, and we will not allow the broad asures of money ciulating in the economy to rise at a rate rapid ough at it would cause inflation eventually. >> reporter:here's just one problem: reiart says it's imrtant to remember the earliest this exittrategy would ta effect is next year. >> we don't ow who the federal reserve chairman will be nex year. we don'tnow if the congress ll be considering a federal reserve reform actf 2010. there are going be lots of mechanisms to put pressure o the federal resee. >> reporter: so rehart says, even tugh the fed has an exit strategy, it may noteel free to put it in effect when the me comes. rren gersh, "nightly busines report", washingn. paul: the troubled asset

relief pgram or tarp that ben rnanke helped pass through congress is cing new scrutiny. the specl inspector general for the 00 billion program says the tp has grown, evolving int12 separate prrams at a cost of about $3 trillion. t as stephanie dhue reports, neil barofy and congressional lawmakers say at evolution has credit ratings agencies come witho a lot of explanion. >> reporter:he treasury depament is under fire for keeping secrets. specifically, how e money the govement provided tohe banks is beingpent. investigatn and oversight mmittee chairman edolphus towns demanded actio >> if treary does not put this informion up on its website, this committeeill, and if treary does not turn over this information voluntary, secretary geithner will be ought before the commiee to explain why not. >> reporter: treasury says oe

the banks recee the tarp money 's impossible to distinguish it from other fund special insptor general neil bafsky did his own survey and found banks have used the ney to do everything from paying do debt to mergers and lending. he says the treasu knows exactly wh banks have done wi the tarp fund and should say so. >> the most alarming thing tme is that treasury ctinues to rese to adopt this recommendation, even in lighof the proof that we now ha at this audit, th continue to tell us it was a meangless survey. >> reporr: the treasury's thirty billion dollapublic private investment pgram, known as t p-pip is also under fire. the treasury haselected nine investment firms to paicipate, but it h not adopted barofsky's recomndation that there be airewall between the managers of the public funand their privatinvestments. some of the same firmshosen to participe in the program have also reportedly helped t administration cft the proposal. if in fact these individual had a handn writing these programs, it becomesll the more important from a rception

area alone that we have e tightest and most gnificant barriers and walls to otect themrom taking advantage of a program they m have had a hand in rorting. >> reporter: treasursays it has already adoptesome of the i.g.'s recommendation and ll ntinue to work with his offi in ways that areonstructive. stephanie dhue, "nigly business report", washingt. >> suzanne: keplayers in the financial crisisould soon have to follow a new set of rul. the oba administration today issued a propol to reform the tion's credit ratings agcies and curb their power. the proposal hopes tlimit conflicts interest by barring ratings firms from offerin consulting serviceto the companies ey rate. the measure so aims to cut do on "ratings shopping" a practice wre companies ask for preliminy reports from the agenes, then hire whichever gives the best ranking those preliminary reportwould also be available to iividual investor >> paul: wall street's be chips tended their winning wa to a seventh straight

session today. by 10:00 am the dow was 68 ints thanks to an upbeat outlook from caterpillar and lower but betterhan expected earngs from merck, dupont and freeport mcmoran. after the tech-lad nasdaq market faileto join the blue chipon the upside, the market pued back in the early afternoon. but with apple a yahoo on deck for earnin after the bell stocks snapped bacin the final hourf trading.

>>aul: california's lawmakers have a deal close the state's $26 billion budget deficit. now, after eight mons of political wrgling, they're woing to line up votes for the agreement. it calls for no netaxes and $15 billion in cuts. the remainder of thehortfall wi be closed by borrowing from local governmentand speeding up t collections. education took a big hit, wi $9 blion in cuts to primary schools and state colles. while ere is mounting position to the agreement, a vote is expected trsday. >>uzanne: joining me now with more on toy's bernanke testimon plus a closer look at what people arcalling the "jobless recover is lakshman achuan. he is a business cycle experat ecri. lakshman, welcome again to t program. >> thank you.

>> repter: before we get into ouropic of the labor market i wa to a you your thoughts on the bernanke testimony. what is yourtakeaway fro that? >> on the one hand, it'snice at we're even talking aut an exit strategy beuse it suggests tha as w believe that this recession is drawi to a close and we need to start inking about undoing many of e things that weredone to combathe recession, in particular on the feder reserve side a lot of easy money but of course the devil is alwaysn the deil, and in this caset's all abotiming. when do they bin to pullback? >> emily: one of the this the fed >> one of the ings the fed chairm was talki about today was employment. he said we may not see a peak in unemployment until a ways away. explain to ople. wh do we an when we talk

out a jobless recovery? >> f various rsons these ll beginto rise whe a cession is over howevere don't see lot of job growth. that lag behind. in 200 when weere coming out of theast recession and also in the ear 19's, we d just that where g.d.p. and production and sales all went up and jobs did not grow. >>uzanne: you will have to excuse us. have apparely a fire-safety st here on the floor of the w york stock exchange. just bear with us for second. can y? >> yes. >> suzanne: can you plain for me the paradox of a jobless recovery? how is it possible that you ca still having an economy that's recovering d all these people are stil losing bs?

>> yh. the actual job losses will begin to abatefor lar sectors of the job market. in particular, e service sector. that's wre 90% of us wor -- nine out o 10 people work there and i expect that as the receion draws a close, th summer, that we'll start to see jobs growth in t services sector, and ceainly not job loes. the problem, really, is in the manufacturinsector where abt one out of 10 people work butwe see outsed jo loss. in the last 10 years, we've gone from 18 million manufacring jo to , so we' lost a third of our manufacturing jobs, and they' never coming bk so it's kind of the tail wagng the dog,as it were, and we'll probably have th this time around, to >> suzne: would you expect that ware ing to see the economy sht and become en more of a service-sector economy, less manufacturin wherare these people goingto

get jobs from? >> ah, they're goi to be shiftingver to theervices sector. this is something that's bee going on f cades where we have been shifting from a big manufacturing employnt base to more of us working in serces. mind you, t mafacturing portion of g.d.p. is ill quite hi, it's on the order of 40% or so but just less and ls peop are needed in orde to produce that much goods. so if you're in manufacturing, 's not a bad idea to see if you can get a job in services. >> suzanne: what about those peopleho are making these doom-and-gloom predictions of 25% for theunemployment rate? is that really a possibility, do you ink? >> not for the headline unemployment rate tt right now is about 9 1/2%, because you really need to have a depreion in ordero get those kind of unemploynt rates and that is simply not gng to happen. our leading indicators, the weekly leang index hasoared to a multiyearhigh, and there is just no way that we're gng

to have this recession accelerate to th down side. it's not happening. >> suzanne: i hopeou're right. i think have to leave it the, though. thank you for ining us. >> all right. >> suzanne: ouguest this evenin lakshman achuthan. >>uzanne: a blockbuster earnings report frompple late today. the tech giant proved toe recessioproof during its third quarter it sold more than 5 million i-phes and 2.5 million mac books. as a result, ale earned $1.2 llion, or $1.35 a share, 18 cents better than analts were expectin

meanwhil yahoo also beat pectations, despite a mixed report after the bl. it earned $141 million oten cents a shar but, the company ss operating inco falling during the current quarter, from its cond quarter level. yahoo also launched a new homepage today with focus on jump-staing its search adrtising business. yahos outlook sent its shares down neay 3% in after hours. paul? >> pl: suzanne, apple shares moved over 4% higher iafter hours. now les take a look at our stocks in the news tonight uuuuuuuuuuuuuu

and those are e stocks in the ws tonight, suzanne. >> suzanne: as you menoned, paul, earngs season is in full swing. so far, mostompanies are blowg away expectations. but that may note enough to prop the market higher. as erika miller explns, investors wa to know how the earnings are being generatednd evidence busins is improving. >> repter: a rocketing covery for earnings may be t much to hope for but analt nick colas thinks corporate profits may be athe start of a gdual climb in altude. >> i think ihas to be a slow d steady recovery because we're in such a deepole in the econom unemployment is stilrising. inial claims are still very high. unemployment rates a still very high and are probably gng to climb past %. and all of those factors me for a ower than average recovery. >> reporter: he is skeptal about the earngs forecasts of ll street analysts. cording to thomson reuters, earnings for the s 500 are excted to fall 21% in the third quarter.

but thanks to easy cparisons, profits are expected to soarn eypopping 188% in the fourth. colas says no way. >> i tnk its very unlikely. and i think wh you are going to have toook at what kind of sustaible core earnings growth these companies can ha. d i would be surprised if co earnings coulde anything betterhan 5% or 10% improved. and co revenues anything better than 2% or 3% iroved. >>eporter: it's still early in the earnings reporng season, just 16% of ths&p 500 have annoced results. nearly all havbeat expectationsnd by an average of 30%. buanalyst tony dwyer says there's a catch. >> underath the surface of the 'beating expectations' is th earnings are still dn more than 30% fm a year ago. soou are coming from a very low base of expectatns. most imporntly, revenues are disappointing. u really need to have increased revenueso take advantage ofhe lower cost stcture. >> reporter: f the most part, mpanies are confident things are not getting woe.

but th's not good enough. now wall streewants proof that ings are actually improving. the bottom le for stock investors is buce your seatbelt. the market could be inor a bumpy ride. erika mill "nightly business report" new york. >> paul: tomorrow, strt critique gst david garrity ins us for an update on tech earnings. >> suzanne: the's a new leader freddie mac, the mortgage gians third c.e.o. this year. former putnam invements chairman charl "ed" haldeman habeen named chief executive officer. his predecessor, john kosken will returas freddie's non- executive chairman of e board. haldan is expected to begin his new job next month, afr the compy releases second quarter results. >> pl: it looks like cost cutting mos are perking up results at starbucks. late today, the coffee giant said it earned $15million or 24-cen a share in its third quarter.

thateat expectations by a nickel and revsed a loss from year-ago. starbucks shares ended the d at $14.69 a are, but jumped 9% in after hours trading. euquu

>> suzanne: here's a look at what's happening torrow. >> suzanne: tonight's "of mual interestcommentary has a list hot funds to avoid! here's john waoner, mutual fundolumnist at "usaoday." >> you can find plen of information on what mutual fds you should buy but day, were going to eliminate the positive and accentuate the negate. were goi to tell you what funds not to buy. you can choose ang nearly eit thousand funds of all stris, and some of them are just plain silly. start with leveraged funds, which use futures d options to goostheir returns. ma leveraged funds promise to give you twice theeturn, on a dailbasis, as a broad-based index, sucas the standard & poors 500. n fds eve some n funds even promise triple the gain or loss fr the index. financiapros have lost biions using leverage. be smart than the pros and don't mess with it.

you don't need curncy funds, eitherwhich track the vements of the dollar agains the yen, the eur and the braziliareal. do you know which rection the new zealand dollar is gointo go? if not, leave these funds ale, too. while we're dissinfunds with an international fvor, you can safe sidestep the international funds th invest in a sgle overseas country, particularly an emergingarket. unless y have close ties to india, and understd its economy and politi, don't make a financial passage tondia. closer to home, don't inst in a u.s. treasy-only money fund. interest rates a so low now that many trsury-only funds eld exactly zero. you caget better yields and government safety from yr friendly localank. finall look at funds that have rotten records for a lg period of time. sure, they cou get better. but ey usually don't. most people don't need me than six to tenroadly diversified funds with low expenses. all those othefunds do make moy, just not for you. i'm johnaggoner. >> paul: rapping today's maet action, caterpillar's outlook helps lift scks. the w gained 67 points

and the nasdaq added almost seven points. and to learnore about the sties in tonight's broadcast, to watch our seaming video and to take part in our daily bl, go to "nightlyusiness report" pbs.org. you can also email us at nbr@pbs.org. >> suzanne: th's "nightly busiss report" for tuesday, july 21. i'suzanne pratt gonight, everyone. d good night to you, paul. >> paul: goodnight sanne. i'm paul kgas wishing all you the best of good buys. "nightly biness report" is made possible by: this program was me possible byontributions to your pbs station from viewe like you. thk you.

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