captioning sponsored by wpbt >> paul: ben bernanke and company see an improving economy and hold rates near zero. federal reserve policymakers say the economy is on the mend. we get the lowdown on the fed's thinking with economist michele girard and market strategist michael farr. >> susie: $11.7 trillion and counting-- that's where the national debt now stands. but it could go higher if treasury secretary geithner has his way. >> paul: your blackberry will soon face new competition. microsoft and nokia team up to take on a business need. a smartphone that puts "office" in your pocket. >> susie: then, investors move into shares of toll brothers as

the luxury home maker says a foundation is being laid for a turnaround. we'll explain in tonight's stocks in the news. >> paul: i'm paul kangas. >> susie: and i'm susie gharib. this is "nightly business report" for wednesday, august 12. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. >> susie: good evening, everyone. the federal reserve said today the economy is quote "leveling out," and stocks rallied on wall street. the central bank wrapped up a

two-day meeting leaving its key interest rate unchanged at zero percent and signaled that the u.s. economy is beginning to recover. as suzanne pratt reports the decision was unanimous. >> reporter: the super low interest rates americans have been enjoying are likely to stay with us for a while longer. wrapping up its policy meeting, the federal reserve left the benchmark short-term rate close to zero percent, saying economic conditions warrant it. economist steve ricchuito says the fed is not telegraphing when it will raise rates, but he has his own guess. >> our personal bet is that we won't see any real movement on rates until we get to the second or third quarter of next year, and that's contingent on the economy really finding its feet and starting to be able to move sustainably forward. >> reporter: in assessing the economy, the fed said activity is leveling out, but likely to remain weak for a time. it also acknowledged financial market conditions have improved in recent weeks.

policymakers also opted to slow the pace of purchases of long- term treasuries, extending the emergency rescue program by one month until the end of october. economist drew matus says the fed wants to get the bond market used to functioning without the central bank as a big buyer. >> it means the market has time to almost digest the fact that the treasury purchases won't be expanded. and, therefore, it should be less disruptive to financial markets. >> reporter: the fed also noted today there are few inflationary pressures in the economy. experts say that gives the central bank even more room to keep rates low for longer. suzanne pratt, "nightly business report," new york >> susie: joining us now with more analysis on the fed, the economy, and the markets-- michelle girard, senior economist at r.b.s., and michael farr, president of farr, miller, washington and author of "a million is not enough." michelle, michael, nice to see both of you. >> good evening. >> thank you. >> susie: michelle, let me

begin but, you heard our report. the fed is saying that the economy is leveling out. is that the fed's way of saying things are okay now? >> yeah, well, there's been growing evidence that perhaps the recession that we've been in since the end of 2007 is over. and i think that that's probably true. when we look back, i think the official end date will probably be sometime here in the third quarter. and i think the -- very importantly they also continue to signal that even though activity is leveling out, they still expect to keep rates low for an extended period. so you can see that even though they are acknowledging some improvement had the economy, they still see some vulnerability and they do not want market participants translating the improvement in the economy into the prospect of the fed raising rates my time soon, that is still not on the radar kreen. >> susie: michael, do you agree with michelle? what's your take away of the fed's decision? >> i thought it was an

expected decision, but all in all pretty good news. before they said that the economy was still contracting, but the contraction was slowing, that it's leveling off right now. that they're seeing some positive growth in the rate of change, that's pretty good. but they're sort of calling for washington post said today they're calling for a recovery that only a staity stish an can love. it means we're leveling out but not looking forward to any tremendous growth. we have avoided a lot of dire scenarios, so there's a lot the feel good about in this release today. i'm not sure what you translate that in rushing out to buy stocks. >> susie: exactly. i think michelle the point that michael is making is a good one, because the fed is still saying that there's ongoing job losses, sluggish income growth. moth people don't feel that this is really a recovery. >> right. well, that's the tricky thing. it's like, people are likened

it to a stock that falls from 10020 $10, even if it goes up to $20, it double, but it's still down so sharply. i think that's very similar with respect to the economy. it's possible that we'll see groh rates that look quite healthy, but still the overall level of activity is going to be very low. and that's why it's very much like michael said, we'll see the signs of growth and signs of recovery, but for most people they won't necessarily feel that. things -- >> susie: so are you saying investors should not feel confident at this time about putting new money into the stock market even though there was a big rally today? >> i think that investors ought to continue to be cautious about committing dollars to the stock market. the stock market is up some 50% since the lows in march. it's been a tremendous run. maybe the selling was overdone

and we were looking for an amazingly dire scenario in march, things really failing. things have sort of built back, gotten together. but we've got from a market that was selling at ten times earnings now to now 16 times earnings. and most of that gain has all been in the multiple expansion. what i mean behave is that for every dollar in earnings people were willing to pay $10 a share in march, they're now willing to pay $16 a share. but there hasn't been any real increase in those earnings. the fundamentals have not driven this market advance. so when you see prices go up with that fundamentals behind them, i think you have to be a bit cautious. it tells you that stocks are getting goo pricing. >> susie: and there could be new developments in the bond market, because, michelle, today the fed said they're going to start pulling back from buying treasurys. what could be the consequences of that? >> well, it's funny, i don't think that the treasury, excuse me, the fed buying of

treasury securities has really done a lot to keep treasury yields down. but the fed has also been buying mortgage backed securities and agency debt. and there i think we've actually seen some frankible impact, i think that's what's been important. they are winding down the treasury purchases, but they are going to continue to buy mortgage securities, and i think that that will help to keep mortgage rates from rising, even if treasury yields start to move up, i think the ongoing purchase in the mortgage sector will provide underlying important for the housing market. and slowly make a bottom and perhaps start up modestly by the end of the year. >> susie: we have less than a minute left. go ahead, michael. >> michelle, i thought the interesting thing there too was the feds giving us an indication of how they are going to terminate some of these programs, not just a dead stop at the end of september, they're going to taper it off. and that gives us a sense of what they might do with a mortgage back repurchases, and at the next fed meeting i

think one thing that wall street will be looking at is, are you going to follow through. you said you were going to do it, are you really going to do it, and when are we going to hear with the next program that might be also slowing down. i think it's very important this time. >> susie: real quickly, i want to ask both of you, do you think that ben bernanke will hold onto his job as fe chairman? there are only four meetings left between now and the time that his term ends. michael what do you think? >> i think that he will, i think he should. but my guess is that he will. i think the naysayers are in the wrong camp on ben. >> susie: michelle? >> i agree. i think he will, and i particularly if the economy continues to show improvement. i think with every passing day his odds of renomination go up. >> susie: we'll check back with both of you on that. thank you again for coming on the program. appreciate it. >> thank you. >> thank you. >> susie: my guests tonight, michelle girard and michael farr.

>> paul: wall street opened sharply higher in anticipation of some optimism from the fed. buying enthusiasm was also linked to a smaller than expected june trade deficit and a jump in home prices, which we'll detail in a moment. by 11:00 a.m. the dow was up 125 points and the nasdaq was up 33 points. the fed's rather encouraging statement had the dow up as much as the 180 points this afternoon until a late fade trimmed the gain. the dow jones still closed up 120.16 at 9,361.61. the nasdaq gained 28.99 to 1,998.72. the s&p 500 added 11.46 to 1,005.81. in the bond market, the 10 year note lost 10/32 to 95-8/32 putting the yield at 3.71%.

>> susie: first-time home buyers continue to snap up foreclosures and short sales as they take advantage of low interest rates and tax credits. the national association of realtors say one-third of all purchases in the second quarter were made by first-time buyers. those bargain buys drove down prices in most cities. the national median price for single-family homes slipped almost 16% to $174,000. but those lower prices helped boost sales in 39 states. >> paul: wars, medicare, bank rescues and stimulus plans-- it all adds up. the federal government is in debt to the tune of nearly $12 trillion. treasury secretary timonthy geithner has asked congressional lawmakers have already boosted it once this year.

and if they don't do it again, we'll top the $12.1 trillion cap before year's end. as stephanie dhue reports, when it comes to paying its bills, the government plays by its own rules. >> reporter: if you or i said "charge it" and we'd maxed out our limit, the credit card company would say, "no." when the federal government does the equivalent-- what's called reaching the debt ceiling-- it asks congress for an increase. analyst karen petrou says what's different for the government, is it sets it's own limit. >> the debt ceiling is really a discipline congress puts on the treasury department. don't spend more than "x." now it's an artificial discipline because congress at the same time will pass a budget that says spend "x-plus." >> reporter: with republican lawmakers already grumbling about bailouts. this fall, petrou expects a political fight over raising the debt ceiling. and she says stimulus and tarp spending will take center stage. >> that's made the budget

deficit a real hot potato. and congress this time around is going to toss it around for a while as opposed to just allowing the debt ceiling to go up yet again. >> reporter: the last time there was a major battle over raising the debt ceiling was in 1995, when the republican led congress fought with president clinton. the result: federal workers sent home on furlough as part of a government shut down. most observers don't think a shut down is in the works this time around. budget watchdog robert bixby calls the debt ceiling debate political theater, he says the only way to control the debt is to make real changes. >> those involve some hard choices on the spending and tax side. congress doesn't want to do that. until they do that, they really can't prevent the debt from going up. you'd have as much success saying to your child stop growing, we don't want to buy you new clothes. well, the kids are going to keep growing, so, have a more realistic plan. >> reporter: like the consumer who maxes out a credit card piling up more federal debt will

be costly. in the next ten years, interest payments alone on the debt are expected to be $800 billion a year-- about what we spend each year on defense. stephanie dhue, "nightly business report," washington. >> susie: sometimes the big guys get so distracted by a battle that they lose the war. microsoft and nokia have long competed over the operating systems that control smartphones. millions of users of microsoft office and nokia cell phones have turned to rivals like rim's blackberry to get the service they want. but as tech guru scott gurvey reports, the companies today announced a partnership aimed at winning the smartphone war.

>> reporter: this is something users of microsoft office never thought they'd see-- office mobile on a nokia smartphone. that's because until now office mobile would not run on nokia phones. office mobile lets you create and edit word documents, excel spreadsheets and powerpoint presentations on the fly, but nokia's phones use a nokia operating system called symbian that's not compatible with windows. that left an opening for competitors to link their smartphones to office messaging systems. nokia's kai oistama admits the success of those competitors led to today's deal. >> if you want to name one company who i think this partnership is going to make run for their money, it is going to be blackberry. >> reporter: nokia hopes bringing microsoft's office programs to it's high performance smartphones will coax some business users to give up their blackberries. microsoft business division president stephen elop says office running on nokia phones will expand its market now limited to the roughly 10% of smartphones which run windows mobile.

>> it's about, you know, brands that people recognize today, whether that's word, excel, powerpoint, whether that's our sharepoint collaboration capabilities. those brands which are very well known in the business segment and increasingly in the consumer segment for some of them, there's no question that this will help us to take that much further, much faster. >> reporter: microsoft insists it is not giving up on its own mobile phone system. a new release of windows mobile is expected later in the year. scott gurvey, "nightly business report," new york. >> paul: now let's take a look at some stocks in the news tonight.

>> susie: tonight, 52,000 americans are wondering when they'll hear from the u.s. tax- man. those people are at the core of a settlement today between the justice department, and the swiss banking giant u.b.s. justice sued the bank earlier this year, looking for the names of wealthy americans suspected of offshore tax evasion. u.b.s. and the swiss government fought that demand. but university of miami finance professor doug emery says globalization of the banking industry left the swiss with few choices. >> the u.s. government, and governments elsewhere could say, "fine, if you're swiss, then you're not doing business anywhere but switzerland." and i think ultimately that's a pretty heavy business threat. and i think the swiss government saw it the same way. if they were going to take their

place as important financiers and bankers in the world today, they had to play by the rules, they had to agree to this. >> susie: details of the settlement are expected to be made public next week. in february, u.b.s. agreed to an $800 million fine, settling federal charges that it helped wealthy americans hide nearly $20 billion in foreign bank accounts. >> paul: tomorrow, from g.m. to bank of america and citigroup, big bailed out firms face a deadline on executive pay. >> susie: airline rivals are swapping airport slots in two of the nation's busiest cities to help their businesses take off. delta air lines and u.s. airways said today they're exchanging gates at new york's laguardia airport and washington's reagan national. the deal lets delta expand its new york service while u.s. airways increases service in d.c.

it also lets them better compete with low-fare rival southwest airlines. >> paul: the securities and exchange commission plans to file insider-trading charges against pequot capital management and its founder arthur samberg. the s.e.c. wants to know if pequot traded microsoft shares on confidential information provided by a former employee of the software giant who was later hired by pequot. a month ago, samberg said that was not the case. back in may, he announced that he's shutting down pequot.

>> susie: here's a look at >> susie: in the "money file" tonight, learning to trust wall street again. here's harriet johnson brackey, personal finance columnist at the "south florida sun sentinel." >> reporter: the obama administration has put two proposals on the table: one would allow the s.e.c. to regulate how stockbrokers are paid, and the other would require all financial advisors to put their clients interests first, ahead of their own. both are good ideas. but i don't think they're enough to rebuild trust in wall street. to people with shrunken retirement savings or not enough for college, wall street doesn't seem to have any answers. so many highly paid financial advisors didn't help ordinary investors to avoid the stock markets 45% collapse or tell them that mortgages were about

to explode. brilliant financial engineers couldn't even save their own investment banks or a.i.g. but they did shove a lot of risk into ordinary investors portfolios without really explaining it and regulators didn't see it. as a result, a whole lot of people are going to have to work longer, retire later, save more or spend less. or all of those things to recover. wall street reached into investors pockets for fat fees for too long, and now it has taxpayer bailouts. main street has no such protection on the downside. that, to many people, is more than wall street deserves. trust will be wall streets issue for a long time to come. i'm harriet johnson brackey. >> paul: recapping today's market action: stocks rally as the fed says the economy's leveling out. the dow gained 120 points, and the nasdaq added almost 29 points. to learn more about the stories

in tonight's broadcast, to watch our streaming video and to take part in our daily blog, go to "nightly business report" on pbs.org. you can also email us at nbr@pbs.org. >> susie: that's "nightly business report" for wednesday, august 12. i'm susie gharib goodnight, everyone, and good night to you paul. >> paul: goodnight, susie. i'm paul kangas wishing all of you the best of good buys. "nightly business report" is made possible by:

this program was made possible this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org