Wall Street bounded higher Wednesday after the Federal Reserve assuaged some of investors’ fears about a sinking economy, stating that risks to the financial markets from the summer’s credit crises have eased. The Dow Jones industrial average gained more than 130 points on the day.

Stocks initially zigzagged after the Fed lowered interest rates as expected because some investors balked at the notion that the Fed might not lower rates again at its December meeting. However, investors eventually appeared relieved that the Fed’s comments about the inflation — a perennial concern — signaled the central bank was able to return to somewhat more parochial worries and focus less about upheaval in the credit markets than when it met last month.

Wall Street was heartened by the fact that investors, businesses and consumers alike will be getting cheaper access to cash because of the widely anticipated quarter-point rate cut. The fed funds rate now stands at 4.50 percent. Last month, the Fed surprised the market with a larger-than-expected half-point cut in the funds rate — the rate banks charge each other for overnight loans.

After months of agonizing over an anemic credit market, investors appeared to take some solace that the Fed found room to offer a less accommodative statement than some had expected.

“A rather stingy Fed suggests that they see an economy that is in pretty good shape,” said Bruce McCain, head of the investment strategy team for Key Private Bank.

“They’re saying now we can turn back to the issue of inflation and implicit in that is that the economy is getting back on track,” he said.

The Dow, which had dipped briefly into negative territory after the decision, rose 137.54, or 1 percent, to 13,930.01.

Broader stock indicators also advanced. The Standard & Poor’s 500 index rose 18.36, or 1.20 percent, to 1,549.38, and the Nasdaq composite index rose 42.41, or 1.51 percent, to 2,859.12.

The Russell 2000 index of smaller companies rose 11.87, or 1.45 percent, to 828.02.

Treasury bond prices fell after the Fed’s decision. The yield on the 10-year Treasury note, which moves inversely to its price, rose to 4.47 percent from 4.39 percent late Tuesday.

In comments following its two-day meeting, central bank policymakers said recent spikes in energy and commodity prices are among the forces that could be adding to inflation pressures and that with its latest move “the upside risks to inflation roughly balance the downside risks to growth.”

The rate cut came after a 9-1 vote, with Kansas City Fed President Thomas Hoenig dissenting, arguing that he preferred no change in the funds rate. The Fed on Wednesday also lowered the rate it charges to lend directly to banks, the so-called discount rate.

The bank appeared more upbeat about the health of the economy than it did last month, when it said strains in the credit markets threatened to further pinch the housing market and the economy at large. The Fed said Wednesday that “economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance.”

Quincy Krosby, chief investment strategist at The Hartford, said the market decided that the central bank wasn’t necessarily ruling out further rate cuts.

“I think that the market finally realized after the initial drop-off that the Fed is saying ‘Look, we’re going to be data-dependent,’” she said. That would be a return to the Fed’s mode of operation before the summer’s constriction in the credit markets forced the bank to set aside some of its concerns about inflation.

Krosby added that after giving investors the rate cut, prudence demanded that Fed offer a somewhat cautious statement and address concerns about surging commodity prices. Oil hit another record Wednesday, while gold rose above $800 an ounce for the first time in 27 years.

“I think that upon analysis of it the market understood that you cannot have oil prices hitting almost $95 a barrel. You have to acknowledge commodity prices.”

Oil futures climbed to nearly $95 per barrel for the first time after the government reported an unexpected drop in crude oil inventories for the second week in a row. Light, sweet crude rose $4.15 to settle on the New York Mercantile Exchange at $94.53. The dollar fell to a fresh low against the euro after the Fed’s decision and gave up ground against other major currencies. With rates lower, some investors looked for higher-yielding currencies.

The day’s rate cut came after the Commerce Department said the country’s gross domestic product grew at an annual rate of 3.9 percent in the third quarter, a faster pace than the 3 percent growth economists had forecast on average.

Another Commerce Department report showed construction spending increased 0.3 percent in September, the best showing in four months. Spending on commercial construction and for government projects made up for weakness in home building.

The Chicago purchasing managers index of manufacturing activity in the Midwest showed a decline, falling to 49.7 for October from 54.2 a month earlier. A reading below 50 signals a contraction in activity. The index is seen as a harbinger of the national Institute for Supply Management report, to be released Thursday.

Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where consolidated volume came to 3.84 billion shares, compared with 3.11 billion shares traded Tuesday.

Overseas markets closed mostly higher ahead of the Fed’s decision. Britain’s FTSE 100 rose 0.94 percent, Germany’s DAX index added 0.52, and France’s CAC-40 gained 0.76 percent. Japan’s Nikkei stock average rose 0.52 percent, while Hong Kong’s Hang Seng index fell 0.90 percent.

AP

The Federal Reserve sliced an important interest rate Wednesday — its second reduction in the last six weeks — to help the economy survive the strains of a deepening housing slump that is likely to crimp growth in coming months.Fed Chairman Ben Bernanke and all but one of his colleagues agreed to lower the federal funds rate by one-quarter percentage point to 4.50 percent at the end of a two-day meeting.

“The pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction,” the Fed acknowledged in a statement explaining its action.

The funds rate affects many other interest rates charged to millions of individuals and businesses and is the Fed’s most potent tool for influencing economic activity.

In response, commercial banks, including Bank of America, Wells Fargo and KeyCorp., announced that they were cutting their prime lending rate — for certain credit cards, home equity lines of credit and other loans — by a corresponding amount, to 7.50 percent.

The rationale behind the cuts is that the lower borrowing costs will induce people and businesses to boost spending, energizing economic activity.

Wall Street was cheered by the Fed action. The Dow Jones industrials jumped 137.54 points to close at 13,930.01.

The Fed policymakers supporting Wednesday’s rate cut said the action — along with a rate reduction in September — was needed to “forestall some of the adverse effects on the broader economy” that might arise from the housing and credit troubles that have wreaked havoc on Wall Street over the past few months.

Fed policymakers indicated the two rate cuts ordered so far may be sufficient to help the economy make its way safely through the trouble spots.

They said the risks to the economy from inflation “roughly balance,” or are equal to, the risks of a serious downturn in economic growth. Previously, the risks of a recession were seen as more of a threat to the country’s economic health.

“The message: They are now done for the time being,” said Lynn Reaser, chief economist at Bank of America’s Investment Strategies Group. “They have taken out a significant insurance policy and now they believe they are fully covered against a recession risk — at least for the near term,” she said.

For now, Reaser and other economists think the Fed probably will leave the funds rate alone when its meets next on Dec. 11, the last session of the year.

The 9-1 decision to cut rates on Wednesday was opposed by Thomas Hoenig, president of the Federal Reserve Bank of Kansas City. He preferred no change in the funds rate.

So far, the economy has shown amazing resilience to the housing and credit strains.

The economy grew at a brisk 3.9 percent pace in the summer, the fastest in 1 1/2 years, the government reported Wednesday. The impressive performance came even as the housing market sank deeper into the doldrums.

Fed policymakers, in their statement, said the economy turned in a “solid” performance in the third quarter. They also said that “strains from financial markets have eased somewhat on balance.”

Even so, economic growth is expected to slow to a pace of around 2 percent or less in the current October-to-December period as the toll of the deteriorating housing market catches up with consumers and chills their spending.

As another bolstering move, the Fed also sliced its lending rate to banks by one-quarter percentage point on Wednesday. That was the third cut to that rate since mid-August.

Complicating the Fed’s job to keep the economy and inflation on an even keel is surging oil prices. They soared to a record near $95 a barrel on Wednesday.

The Fed said “recent increases in energy and commodity prices, among other factors, have put renewed upward pressure on inflation.” The Fed said that while some inflation barometers that exclude energy and food prices have improved modestly this year, some inflation risks remain. They pledged to “monitor inflation developments carefully.”

If rising oil prices boost the cost of many other goods and services, then inflation could take off. At the same time, high energy prices could crimp consumer and business spending, putting another damper on overall economic activity.

Although the economy performed well in the third quarter, the housing slump deepened. It shaved more than a full percentage point off economic growth.

The meltdown in the mortgage market has made it harder for people to obtain financing to buy homes. That’s aggravating problems in the housing market and leading to a mounting pileup of unsold homes. The housing slump is expected to drag on well into next year and foreclosures are expected to rise.

The Fed on Sept. 18 lowered its key interest rate for the first time in more than four years. It was seen as a pre-emptive strike to ensure housing and credit problems don’t sink the economy. The Fed’s aggressive action at that time prompted a rally on Wall Street, propelling the Dow Jones industrials up by nearly 336 points. It was the Dow’s biggest one-day point jump in nearly five years.

___

AP

IRS Taxpayer Assistance Centers are your source for personal tax help when you believe your tax issue cannot be handled online or by phone, and you want face-to-face assistance.

If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you’re more comfortable talking with someone face-to-face, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative across the counter. No appointment is necessary - just walk in.  If you prefer, you may call a local number (see chart, below) to learn about available and alternate services, and to reschedule appointments with IRS personnel.  If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment may be requested.  All other issues will be handled without an appointment.

Note: Before visiting your local office click on “Services Provided” in the chart below to see what services are available.  Services may vary from site to site. You can get these services on a walk-in, non-advance appointment basis. 

Multilingual assistance is available in every office.  Hours of operation are subject to change.

* Note:  The phone numbers in the chart above are not toll-free for all locations.  When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office.  You may leave a message to request an appointment for help resolving a tax issue or to reschedule an existing appointment.  You will receive a return call within two business days.  If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).

The Taxpayer Advocate Service:  Within California call:

Call 1-877-777-4778 elsewhere, or see  Publication 1546 , The Taxpayer Advocate Service of the IRS.

For further information, see  Tax Topic 104

Partnerships

IRS and organizations all over the country are partnering to assist taxpayers. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals and families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service
300 North Los Angeles St. MS 6602
Los Angeles, CA 90012

Internal Revenue Service
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For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

The share of homes owned but empty edged back up in the third quarter toward a record set earlier this year, the Census Bureau said on Friday, another sign of weakness in the housing sector.

The homeowner vacancy rate rose to 2.7 percent from 2.6 percent in the second quarter, indicating a large share of the nation’s homes are on the market but not selling, said Dean Baker, a director of the Center for Economic and Policy Research in Washington.

“There are a lot of vacant homes out there and a lot of pressure on many homeowners to sell,” he said.

The vacancy rate had been steadily climbing since the fourth quarter of 2004 when it was 1.8 percent and hit a record 2.8 percent at the end of the March. The figure took a dip to 2.6 percent in the second quarter.

“This number is significant because these are homes that the owner is not living in and that are not earning rent,” Baker said. “This number is higher than in housing downturns of the past.”

Reuters

Avoiding credit card overload increases your opportunities to save and invest for important goals.

Before You Start

• Gather recent account statements from your credit cards and other debts.
• Review the interest rates and finance charges you currently pay on each account.
• Take a fresh look at your household budget (or spending habits if you don’t have a budget yet).
• Think about your ability to stop using credit on a regular basis and what changes you might be willing to make to improve your financial outlook.

How-To Guides

• Your Retirement Checklist
• Using Credit Wisely
• Buying Your First Home
• Financing a New Car
• View more how-to guides

Calculators

• Comprehensive mortgage calculator
• How much am I spending?
• How will payroll adjustments affect my take-home pay?
• How much will college cost?
• How much will I need to save for retirement?
• View more calculators

Topics

1. Managing Debt and Credit
2. Installment Debt
3. Revolving Credit
4. Using Credit Wisely
5. Eliminating Credit Card Debt
6. The Role of Debt

1

Managing Debt and Credit

Credit was once defined as “Man’s Confidence in Man.” But in fact, the definition of credit today is more like “Man’s Confidence in Himself.” Using credit today means you have confidence in your future ability to pay that debt. Forty years ago, your parents may have paid cash for their homes and their cars, a largely unheard-of event today. If they borrowed money at all, chances are it was from a relative or friend, and not a financial institution.

Today debt and instant credit are part of our everyday lives. The convenience of instant credit, however, has taken its toll. Many individuals use credit cards to spend more than they earn, and a few of these people actually build themselves a debt prison from which some never emerge. On the other hand, those who never use credit can be denied a loan or credit when they have a justifiable need or use for it. Using credit establishes a history of financial responsibility: Until you establish a credit history, your chances of qualifying for an important loan, such as a mortgage, are greatly reduced.

What is the balance between using credit wisely and staying out of overwhelming debt? Let’s look at the facts and some pros and cons.
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2

Installment Debt

Debt comes in many forms, and most types help us in our daily lives — when used responsibly. Most people cannot buy a home without some financial help, and many cannot buy a car (especially a new one) without some sort of financing. The money borrowed to purchase large-ticket items is called installment debt: The debtor pays a portion of the total at regular intervals over a specified period of time. At the end of that time period, the loan with interest is paid off.

Installment debt allows you to purchase items at a competitive interest rate: for example, 5% to 7% for a 30-year home mortgage and 8% or 9% for a car loan. The loan is paid back on an amortizing schedule, monthly payments of a fixed amount that remain constant over the life of the loan. At first, most of the monthly payment consists of interest. In later years, principal begins to be paid down.

Installment debt is easily budgeted and the debt is eliminated on a predetermined date. Even for those who may actually have the cash to purchase the desired item, installment debt can make financial sense if you can earn a higher return (after taxes) on your investment of cash than you must pay on your installment debt.
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3

Revolving Credit

A revolving line of credit, also called “open-ended credit,” is made available to you for use at any time. Examples of revolving credit are credit cards such as Visa, Mastercard, and department store cards. When you apply for one of these cards, you receive a credit limit based on your credit payment history and income. When you use the credit line, you must make monthly minimum payments based on the total balance outstanding that month. Some lines of credit will also have an annual account fee.

While revolving credit is a convenient way to borrow, it can also become an endless pit of minimum payments that barely cover the interest due. Many cards charge annual rates of interest of 18% or higher. As you pay off your debt, the minimum payment is also reduced, thus extending your payoff period and, consequently, the interest you pay. Paying just the minimum due on a $2,000 credit card loan could mean making monthly interest payments for 10 or more years!

Revolving credit, in addition to being convenient, eliminates the need to carry a lot of cash and can help establish you as a creditworthy risk for future loans. The itemized monthly statements also can help you track your expenses. But some people can easily yield to the temptation that the convenience of credit cards offers. Impulse buying, failing to compare costs, and purchasing large items you can’t afford are all downfalls brought on by always available purchasing power. Spending more than you earn in any given period is a dangerous practice at best, but doing it over an extended period of time can be financial suicide.

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4

Using Credit Wisely

To use credit intelligently, start by examining the terms of the card(s) you are currently using. Keeping track of your cards, their rates, and your current balances will help you to be aware of how you use credit cards. Increased competition in recent years has led some credit card companies to offer enticing features to attract new cardholders, including no annual fees and low interest rates for an introductory period. (And credit card companies sometimes will give their introductory rates to existing cardholders so that they won’t transfer their balances to another credit card company.)
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5

Eliminating Credit Card Debt

If you think you may have too much credit card debt, begin to address it by honestly evaluating your spending habits. Examine your existing expenses to analyze how your money is spent. You will most likely be able to identify the problem areas where you are more likely to spend too much or too readily with credit cards. Then, based on your current spending practices, create a realistic budget to pay off your credit card debt in the shortest time possible while not adding any more debt to it. For assistance, you may want to turn to your financial advisor, who can help you to allocate your resources wisely to address your credit card debt.
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6

The Role of Debt

Today, carrying installment debt is almost a fact of life. Mortgages, car loans, or small-business loans (to name a few) are part of almost everyone’s life. On the other hand, carrying credit card debt is usually not a good idea. At interest rates of 16% and up, it’s hard to justify keeping savings that could pay off that 18% department-store credit card in the bank at 2%.

Debt and credit play increasingly important roles in our lives. As the aging Baby Boomers get closer to their peak earning years, many are realizing the need to reduce debt and increase savings. Even though analyzing your spending habits and creating a budget to address your debt may seem a little overwhelming, the simplicity of the philosophy of the Depression era still stands: Never spend more than you earn. Once you have come to grips with this basic fact, managing your debt will become far easier and more rewarding.
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Summary

• Installment debt means the loan is paid off in a specified period of time by making predetermined payments periodically.
• Revolving credit is a line of credit that is instantly available through use of a credit card (and sometimes a check).
• As you pay down your debt in a revolving line of credit, the minimum payment is also reduced, thus extending your payoff period and, consequently, the interest you pay.
• Spending more than you earn in any given period is a dangerous practice at best, but doing it over an extended period of time can be financial suicide.

Checklist

• Remove high-interest-rate credit cards from your wallet or purse to reduce the temptation to use them unnecessarily.
• Read the fine print on all account statements to understand how your fees and payment amounts are calculated.
• Prepare to transfer balances from accounts with temporary low interest rates that are scheduled to rise soon.
• Use the savings from your debt reduction initiatives to set more money aside for important short- and long-term financial goals.