captioning sponsor by wpbt >> paul: the fedal reserve has pumped hundreds of blions of dollars to the economy. but the fed chairman saythe revery still has a long way to go and now is not e time to tighten monetary policy. >> suzanne: cateillar's latest results weren't ch to write home aut but it's improved ouook helped boost the market. coming up, a look at what e latest flood oearnings says abt the economy. >> sunshine the best disinftant and it will discouge and deter bad havior. >> paul: the special ipector general overseng the $700- biion tarp bailout fund tells lawmakers transpency is needed no >> suzan: then, apple shines, sting a 15% jump in profits i-phones and mac computers

continue to fly off store shelves, even in a recsion. >> paul: i paul kangas >> sanne: and i'm suzanne pratt. susie arib is off tonight. this is "nightly business report" for tuesda july 21. "nightly business repo" is made poible by: thisrogram was made possible by ctributions to your pbs station from viewers le you. thank u. 7//& >> suzannegood evening everne. the federal reserve is notone yet heing to fix the u.s. economy, that is. that was chairman n bernanke's messe for congress today,

sayinghe fed intends to keep interest rates low and cdit easy for quote an extended period. bernanke said it the right policy, even though the econy is showing quote tentativeigns of stabilizaon. the chrman also reassured investors the central bankas an exit strategyeady to go once it'time to reverse its easy money picy. darren gershxplains. >> repter: always cautious, the federal reserve is ccking out the exs in case of an flation emergency. a jumpn prices would require the fed to unwd the $600 billion it has pumped to the ecomy. but chairmanen bernanke made it clear he anhis colleagues are not expecting to p an exit stragy into action for "an extended period of time. vince reinhart is a form senior staer at the fed. he says the ntral bank won't ise interest rates or tighte crit until it believes a durable economicecovery is under y. >>hey don't have that evidence yet, and they are ying to send a signal to push back agnst market participantwho are

expecting too quick turn in monetaryolicy. >> reporte yes, banks are looking tter and markets stronger, but bernan cautioned the recovery hexpects later this year will be tepid and rising unemploymenremains a major ncern. >> job insecurity, tether with clines in home values and tight credit, is likely toimit gains in conmer spending. the possibility at the recent stabilation in household spending will provtransient is an important dnside risk to thoutlook. >> repter: so why all this talk abo an exit strategy? me analysts are concerned abt all the cheap credit the fed has pump into the financl system. banks are now holdg a lot of that cash in reservewhich could co roaring into the econy in the form of new lending once growth return that could mean high inflati and a new bubble bernanke said ree features of the fed's exit strategy ould keep that fr happening. first, theed charges a premium for some of its lendin and as markets ve returned to normal,

banks have sought eaper sources ofash. second, the fed caeffectively pay nks more to keep reserves with the fed, redung the incentive make new loans. and third, the fed can b and sell securities, a technic tool it uses to keep inflati in check. >> so we dhave a number of tools to do it, and we'rquite aware this issue, and we will not allow the broad meases of money circuling in the economy to rise at a rate rapid enou that it would cause inflatio eventually. >> reporte there's just one problem: rnhart says it's portant to remember the earliest this ex strategy would ke effect is next year. >> we don'know who the federal reserve chairman will be nt year. we don know if the congress will be considering a federa reserve reform a of 2010. there are gointo be lots of mechanisms to put pressuren the federal rerve. >> reporter: so inhart says, evenhough the fed has an exit strategy, it may n feel free to put it to effect when the time comes. darren gersh, "nightly busins report", washiton.

>> paul: the troubled asset reliefrogram or tarp that ben bernanke helped pass through congress ifacing new scrutiny. the spial inspector general for th$700 billion program says thearp has grown, evolving io 12 separate ograms at a cost of about $3 trillion. but as stephanie dhue report neil barsky and congressional lawmakers sathat evolution has credit ratings agencies come witut a lot of explation. >> reporte the treasury dertment is under fire for keeping secrets. specifically, hothe money the gornment provided the banks is bei spent. investigion and oversight committee chairman edolphus towns demanded actn. >> if trsury does not put this infoation up on its website, this committ will, and if trsury does not turn over this information voluntily, secretary geithner will be brought before the committeeo explain why not. >> reporter: treasury saysnce

the banks reive the tarp money it's impossible to distingui it from other fus. special inector general neil rofsky did his own survey an found banks have used thmoney to do everything from payi wn debt to mergers and lending. he says the treary knows exactly at banks have done th the tarp fund and should say so. >> the most alarming thingo me is that treasuryontinues to fuse to adopt this recommendation, even in lit of the proof that we now ve at this audit, ey continue to tell us it was a mningless survey. >> repter: the treasury's thirty billion dolr public private investment progr, known as the pip is also under re. the treasury has selted nine investment firms to rticipate, but itas not adopted barofsky's recmendation that there be firewall between the managers of the public fd and their prive investments. some of the same fir chosen to particate in the program have also reportedly helpedhe administrationraft the proposal >> if in fact these individus had a ha in writing these programs, it becom all the

more important from perception area alone that we havthe tightest and mossignificant barriers and walls tprotect th from taking advantage of a program they may he had a hand in reporng. >> reporter: treasury sa it has already adopted so of the g.'s recommendation and will contue to work with his office in ways that are conructive. stephanie dhue, "nightly siness report", washington. >> suzanne: key plers in the financial crisis cou soon have follow a new set of rules. the obama ministration today issued a proposal reform the nati's credit ratings agenci and curb their power. the proposal hopes to lit conflicts of ierest by barring tings firms from offering consulting services tohe companies theyate. the measure alsoims to cut down o"ratings shopping" a practice whereompanies ask for preliminary ports from the agenciesthen hire whichever gives the best ranking. those preliminary reports would also be available to indivual investors. >> paul: wall street's blue chips exteed their winning

ways ta seventh straight session today. by 10:00 am the dow was up 6 poin thanks to an upbeat ouook from caterpillar and lower but better thaexpected earningsrom merck, dupont and freeport mcmoran. after the tech-laden ndaq market failed tooin the blue chips onhe upside, the market pulledack in the early ternoon. but with apple and yoo on deck for earnings aer the bell stocks snapped back inhe final hour of ading.

>> pau california's lawmakers have a deal to cse the state's $2billion budget deficit. now, after eight months political wranglg, they're workinto line up votes for the agreement. it calls for no new tas and $1billion in cuts. the remainder of the shofall will bclosed by borrowing from local governments anspeeding up tax clections. edation took a big hit, with $9 billi in cuts to primary schools and state colleges while theris mounting oppotion to the agreement, vote is expectedhursday. suzanne: joining me now wit more on day's bernanke testimy, plus a closer look at what people e calling the "jobless recovy" is lakshman acthan. he is a business cycle expt at ecri. lakshman, welcome again tohe program. >> thank you.

>> rorter: before we get into our topic of the labor market i nt tosk you you thoughts on the bernanke testimony. what is yo takeaway fm that? >> on th one hand, it's nice that we're even talkingbout an exit strategy cause it suggests tt ase believe tha this recession is drang to close and we need start thinking about undoing many of the things that were done to comb the recession, in particul on the fedal reserve si a lot of easy money but of course the devil is alwa in the tail, and i this case it's all aut timing. when do theyegin to pull back? >> emily: one of the tngs the fed >> one of thethings the fed chaian was talng about today was employment. he said we may not see a peak in unemployment until a ways away. explain to people. at do wemean when we talk

about a jobless recovery? >>or variouseasons these will begi to rise wn a recession is over howev we don't see a lot of j growth that ls behind. in 22, when we were coming out of t last recession and also in the ely 90's, wehad just that where g.d.p. and production and sales all wen up and jobs did not grow. suzanne: you will have to excuse us. we have appantly a fire-safety test here on the floo the new york stock exchange. just bear with us foa second. can ou? >>yes. >> suzanne: can yoexplain for me the paradox of a jobless recovery? how is it possible that you n stilbe having economy that's recoverinand all these

people are stl losing jobs? >> eah. th actual job losse will begin to abate for lge sectors of the jomarket. in particularthe service sector. that'shere 90% of us wk -- nine outf 10 people work the and i expect that as th ression drawsto a close, is summer that we'll start to see jobs growth inhe services sector, and rtainly not job sses. the problem, really is in the manufacturg sector where out one out of 10 people work but we see ouized b lses. in the last 10 years, we've gone from 1 million manufturing bs to 12, so wve lost a third of our manufacturing jobs, and there never comingack so it's kind the tail wging the dog, as i were, and we'll probably have at this time around, o. >> sanne: would you expect that waregoing to see the economy ift and becomeven more of a service-sect economy, less manufacturg? whe are these people going to

get jobs from? >> yeah, they're gng to be shifti over to the services sector. this is something that's bn going onordecades where we have been shifting from a big manufacturing emplment base to more of us working in svices. mind you,he nufacturing portion of g.d.p. isstill quite gh, it's on the order of 40% or so but just less andess pele are needed in orr to produce th much goods. so if you're in manufacturing, it's not a b idea tosee if you can get job inservices. >> suzanne: wh about those people who are making these doom-and-glo predictio of 25% for the unemployment re? is tt really a possibity, do you think? not for the headlin unemployment re that right no is abo 9 1/2%, becauseou reallyeed to have a depression in order to get those kind of unemployment rates and tt is simply not going to hpen. our ading ndicators, the weekly leading index has soared to a multear hh, and the is just noay that we'r going

to have this receion aclerate to the down se. it not haening. >> sanne: i hope you're rig. i think we have to lve it there, though. thanyou for joining us. >>ll right. suzanne: our guest this evening: lakshman achuan. >> suzanne: a blocuster earnin report from apple late today. the tech gnt proved to be recession-proof during i third quarter as it sold more an 5 million i-phones and 2.5 milon mac books. a result, apple earned $1.2 billion, or $1.3a share, 18 cents beer than analysts were expecting.

meanwhile, yahoo also be expectations, deite a mixed repo after the bell. it earned 41 million or ten cents a share. but, the companyees operating inme falling during the current quarter, from itsecond quarter level. yao also launched a new homepage today with a fos on jump-startinits search adverting business. yahoo's tlook sent its shares down nearly in after hours. paul? >>aul: suzanne, apple shares moved over 4% highern after hours. now t's take a look at our stocks in the news tonig. uuuuuuuuuuuu

and those arthe stocks in the news tonight, suzanne. >> suzanne: as you mtioned, paul, eaings season is in full swing. so far, mo companies are bling away expectations. but that may n be enough to prel the market higher. as erika miller exains, investors nt to know how the earnings are being generat and evidence busess is improving. >> rorter: a rocketing recovery for earnings may beoo much to hope f. but anyst nick colas thinks corporate profits may bet the start of aradual climb in titude. >> i thinkt has to be a slow and steady recovery because we're in such a de hole in the econy. unemployment is stl rising. itial claims are still very high. unemployment ratesre still very high and are probablyoing to climb pas10%. d all of those factors make for a slow than average revery. >> 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. 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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