BUSINESS BRIEFS
Fed keeps prime rate at 5% due to inflation worries
Associated Press
WASHINGTON — With inflation moving higher on its worry list, the Federal Reserve held interest rates steady yesterday, ending nearly a year of cuts to bolster the economy, and hinted that the next direction for rates could be up.
Fed Chairman Ben Bernanke and all but one of his central bank colleagues agreed that the best course was to leave a key rate alone at 2 percent, as the country slogs through the crosscurrents of plodding economic growth and zooming energy and food prices that threaten to spread inflation.
That meant the prime lending rate for millions of consumers and businesses stayed at 5 percent. The prime rate applies to certain credit cards, home equity lines of credit and other loans.
The decision brought to a close a series of rate reductions that started in September and extended through late April. It was the central bank's most aggressive intervention in two decades to shore up an economy bruised by the housing, credit and financial crises.
NEW HOME SALES, PRICES PLUNGE
WASHINGTON — Sales of new homes tumbled for the sixth time in seven months in May while median prices kept plunging, underscoring the depth of the nation's housing woes.
The Commerce Department reported yesterday that new homes were sold at a seasonally adjusted annual rate of 512,000 units in May, down 2.5 percent from the April level. The median price of a new home sold last month fell to $231,000, down 5.7 percent from a year ago.
The report on new home activity in May followed reports Tuesday that showed record home price drops in April, indicating the nation's housing slump is not only deepening but widening to include previously untouched parts of the country.
The inventory of unsold homes rose to 10.9 months in May, meaning it would take that long to exhaust the current supply of unsold homes. Because of the unusually high inventories, economists believe that home prices will keep falling until the spring of next year.
CREDIT CARD FIRMS SETTLE LAWSUIT
NEW YORK — American Express Co. has ended another round of litigation with a rival card company, but still faces serious headwinds from its customers.
After announcing yesterday that it will be getting $1.8 billion from MasterCard Inc. in settlement of an antitrust suit, the credit card lender — known for catering to jet-setters and the well-heeled — revealed that it has again underestimated how quickly its cardholders are falling behind on their debt.
"Business conditions continue to weaken in the U.S. and so far this month we have seen credit indicators deteriorate beyond our expectations," AmEx Chief Executive Kenneth Chenault said in a statement.
The rocky consumer climate comes amid a tough legal period for credit card companies, which are battling among themselves and with federal authorities around the world over various rules and fees.
COUNTRYWIDE TAKEOVER OK'D
LOS ANGELES — Countrywide Financial Corp.'s shareholders cleared the way yesterday for the company to be taken over by Bank of America Corp., even as officials in two states filed lawsuits claiming the distressed mortgage lender misled borrowers into taking on risky home loans.
The timing of the lawsuits in California and Illinois as Countrywide prepared to close the books after nearly 40 years underscored the company's dramatic shift over the past 12 months as the mortgage and housing markets soured, inducing its slide from the nation's largest originator and servicer of home loans to easy pickings for a takeover.
Less than an hour into the special stockholders meeting at Countrywide's headquarters in Calabasas, Calif., the company announced that 69 percent of outstanding shares were voted in favor of the deal, which is expected to close July 1.
