The carmaker issued the temporary “stop sale” within hours after the popular consumer magazine raised the handling problem. It reflects Toyotas attempt to respond more quickly to safety concerns after being castigated by the federal government for dragging its feet on recalls to address faulty gas pedals.

The decision to stop selling the SUV adds another stain to Toyotas safety reputation following the recall of more than 8 million cars and trucks worldwide over gas pedals that are too slow to retract or can become stuck under floor mats. Toyota faces a $16.4 million fine from the Transportation Department and has until April 19 to decide whether to contest the penalty.

The GX 460 is not covered by the pedal recalls.

“We are taking the situation with the GX 460 very seriously and are determined to identify and correct the issue Consumer Reports identified,” said Mark Templin, Lexus vice president and general manager.

Lexus will provide a loaner car for any customer who bought a 2010 GX 460 and is concerned about driving the vehicle, Templin said. Customers who have questions or concerns about the GX 460 can call Lexus at 800-255-3987.

Consumer Reports is closely read by many car buyers before choosing a new car or truck and has raised red flags over Toyotas before. In January, the magazine pulled its “recommended” rating on eight vehicles recalled by the automaker due to faulty gas pedals.

In this case, Consumer Reports said the Lexus problem occurred during tests on its track. In a standard test, the driver approached a turn unusually fast, then released the accelerator pedal to simulate the response of an alarmed driver. This caused the rear of the vehicle to slide outward.

Under normal circumstances, the electronic stability control should quickly correct the loss of control and keep the SUV on its intended path. But with the GX 460, the stability control took too long to adjust, which could cause a rollover accident if one of the sliding wheels were to strike the curb or another obstacle, said Gabriel Shenhar, Consumer Reports senior auto test engineer, one of four testers who experienced the problem.

The magazine said it is not aware of any reports of the GX 460 rolling over. It tested two separate vehicles, both of which experienced the problem, but neither rolled over.

The warning label on the model will remain until Toyota addresses the handling issue with the seven-seat SUV.

Templin said in a statement he was “confident that the GX meets our high safety standards” and said Toyotas engineering teams were testing the GX using Consumer Reports specific parameters.

Consumer Reports said the last vehicle to receive such a safety warning was the 2001 Mitsubishi Montero Limited, a large SUV. In that case, testers said the wheels lifted off the road during standard avoidance-maneuver tests, which also posed a rollover risk.

—

Strumpf reported from New York.

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The worlds largest automaker, founded by Toyodas grandfather in 1937, has discussed its strategy with the National Highway Traffic Safety Administration, said Brian Lyons, a Toyota spokesman. He didnt have details on when the fixes begin. Pedal parts from supplier CTS Corp. will be either replaced or new assemblies will be installed, he said.

Toyota aims to limit consumer fallout from 2.3 million U.S. vehicles its recalling for pedals that may stick. The company on Jan. 26 suspended sales of its top-selling Camry and Corolla cars in the U.S. and Canada and halted lines at five North American plants until CTS pedals are fixed. The flaw also sparked model recalls in China and of as many as 1.8 million autos in Europe.

“The possibility of having parts in the marketplace as early as next week is incredible, but its going to take months to get all these vehicles fixed,” said David Champion, director of automotive testing for Consumer Reports.

Shares Plunge

Toyota lost 14 percent of its market value last week as shares fell for a sixth day in Tokyo yesterday, down 2 percent to 3,490 yen. The automakers American depository receipts traded in New York fell 0.9 percent to $77.00 yesterday.

Toyota is putting together a marketing program to discuss how it plans to resolve the issue, Lyons said. He said he couldnt comment on reports that Toyota will publish an “open letter” in major U.S. newspapers tomorrow.

“Were making every effort to explain as soon as possible in language thats easy to understand,” Toyoda, 53, told NHK. “Were doing whats best for our customers, and they can drive our cars with assurance.”

Congressional Hearing

The House Energy and Commerce Committee is to hold a hearing Feb. 25 on the sudden acceleration of Toyota vehicles, which has been linked to 19 deaths in the past decade, said U.S. Representative Henry Waxman, a California Democrat and chairman of the panel. The House Committee on Oversight and Government Reform plans a separate Toyota hearing on Feb. 10.

Toyota has said its North American plants that make Camry, Corolla and Avalon cars; Matrix hatchbacks; Highlander, RAV4 and Sequoia sport-utility vehicles; and Tundra pickups are receiving replacement parts from CTS. The timing of shipping parts to U.S. dealers is still being assessed, Lyons said.

Unprecedented Sales Halt

Consumer Reports said in a statement yesterday that it temporarily suspended its “recommended” status for the eight Toyota models affected by the sales and production halt. That rating for General Motors Co.s Pontiac hatchback, a version of Matrix thats included in the recall, is also being suspended, the magazine said.

“In the automobile industry its unprecedented to have this many vehicles suspended from sale at one time,” Champion said.

In a separate action, Toyota in November said it would recall 4.3 million U.S. vehicles as a result of floor mats that may interfere with accelerator pedals, also causing sudden acceleration. A further 1.09 million U.S. vehicles were recalled for that issue this week.

CTS, based in Elkhart, Indiana, issued a statement yesterday to make clear that its parts werent linked to the November recall, which also involves Lexus vehicles and older Toyota models.

Consumer Lawsuits

Toyota faces at least seven lawsuits by individual plaintiffs claiming deaths or injuries caused by sudden acceleration. Since November, consumers have also filed at least seven lawsuits seeking class-action status against the company, including one yesterday.

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“Calorie posting causes consumers to not only substitute products within stores, but also to substitute across stores,” the authors said. “Consumers who were routinely purchasing coffee and donuts at Dunkin Donuts may have switched to buying coffee at Starbucks when confronted with the calorie content of donuts.”

Bryan Bollinger, Phillip Leslie and Alan Sorensen from Stanfords Graduate School of Business in Stanford, California, used data from Seattle-based Starbucks, the worlds largest coffee-shop operator, to study the impact of mandatory calorie posting on consumers purchase decisions.

Food for Thought

The calorie information had a negligible impact on beverage choices at the 222 Starbucks stores in New York City and led consumers to buy fewer food items or switch to lower-calorie ones, the researchers said.

While the calorie disclosures didnt cause a statistically significant change in Starbucks overall sales, the researchers found that revenue increased by 3 percent at the coffee sellers 37 stores located near a Dunkin Donuts, a chain owned by Dunkin Brands Inc.

A spokeswoman for Canton, Massachusetts-based Dunkin Donuts didnt immediately return voicemail messages left after office hours.

Nutrition labeling on packaged food has been mandatory in the U.S. since the early 1990s, and health officials are increasingly targeting mandatory posting of calories on restaurant menus to fight obesity, according to the study. In 2008, 26.6 percent of Americans were obese, rising from 15.9 percent in 1995.

“Our Starbucks data in the Stanford study helped to raise visibility on the issue of a national menu labeling standard,” Jill Knisley, a Starbucks spokeswoman, said in an e-mail. “Implementing a national or global standard is costly and complex. From our perspective, the regulations and standards should be uniform to enable customers to consistently compare products and make informed choices.”

For Related News and Information: Top health stories: HTOP <GO> Top stories on consumer products: TOP CONS <GO> Most-read health stories: MNI HEA <GO> Starbucks earnings: SBUX US <Equity> TCNI ERN <GO> Starbucks sales breakdown: SBUX US <Equity> PGEO <GO> Restaurant earnings: TNI RES ERN <GO>

Last Updated: January 7, 2010 00:55 EST

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Heres why holiday purchases wont save the day:

- They make up a surprisingly small share of the economy. Last year, gift sales were estimated to account for less than 13 percent of the fourth quarters gross domestic product. And Mark Zandi, chief economist at Moodys Economy.com, thinks theyll account for about the same share of this quarters GDP - the value of all goods and services produced in the United States.

- Many consumers cant get loans. That makes it hard to buy costly items - from cars and homes to appliances and jewelry - related or unrelated to the holidays. Even as the economy returned to growth last summer, consumers borrowed 0.6 percent less from July through October, according to data from the Federal Reserve. Even if holiday sales shine, tight credit will hold back spending in coming months.

- Unemployment has hit double digits and is expected to remain near or above 10 percent well into next year, far above a “normal” rate of 5 or 6 percent. The Federal Reserve says the rate could hover around 8 percent into 2012. Americans without jobs or fearful of losing them arent likely to splurge anytime soon.

- Households are trimming debt. Total household debt, including mortgages, credit cards, autos and other consumer loans, stood at $13.6 trillion in the third quarter of this year, according to the Fed. Thats down from $13.7 trillion in the second quarter. Debt reduction is healthy for personal finances but not for economic growth: Consumers pare debt with money they might otherwise spend.

- Most Americans - 80 percent - plan to use cash for all their holiday purchases, according to an Associated Press-Gfk poll. Using cash is a way to stick to budgets and avoid impulse purchases. It suggests consumers are wary of spending freely - whether for gifts or other purchases.

While holiday sales arent vital to economic growth, consumer spending as a whole is: It accounts for about 70 percent of it.

And usually as recoveries begin, the economy roars to life as pent-up spending is lavished on cars, clothes, homes and appliances. Consumers become an engine of economic strength.

Not likely this time.

With credit tight and joblessness high, no one expects shoppers to provide enough punch to power the recovery. The governments surprisingly strong retail sales report for November - and a decent holiday shopping season - could turn out to be a last hurrah.

“Despite the glimmer of optimism on the surface … the economic fundamentals are weak,” said Sung Won Sohn, economist at California State Universitys Smith School of Business.

Yet that benefit could be fleeting. With consumer spending subdued, companies wont have to keep boosting their inventories.

In part, thats why growth next quarter is expected to slow to 2.5 percent to 3 percent. Under some estimates, consumer spending could grow just 1 percent.

The economy isnt usually this weak early in recoveries.

After the severe 1981-82 recession, for instance, consumer spending rocketed at a 7.5 pace in the last quarter of 1982, when the recovery began. It averaged a robust 6.5 percent quarterly growth in 1983. And the economy surged at a blistering quarterly pace of nearly 8 percent that year.

By contrast, when the economy returned to growth in the third quarter of this year, consumer spending rose at a tepid pace: just 2.8 percent. And the overall economy grew just 2.2 percent.

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Government efforts to push down interest rates and spur lending, combined with discounts by merchants such as Best Buy Co., may encourage consumers to keep buying in coming months. A jobless rate forecast to average 10 percent next year and mounting foreclosures will serve as reminders that the worlds largest economy is not free from all threats to the recovery.

“Were still looking at consumer spending expanding, but obviously with a lot of constraints because of the weak job market and tight credit,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “Youre not going to see a full recovery in the housing sector until the job market recovers.”

An increase in consumer spending for goods and services during November would be the sixth in the past seven months. Sales at U.S. retailers last month increased 1.3 percent after a 1.1 percent gain in October, the Commerce Department reported on Dec. 11.

More Discounting

Companies are luring shoppers by offering lower prices during the holiday season. Best Buy, the largest electronics retailer, was offering flat-screen TVs for $299.99 alongside discounted laptops. As a result, the Richfield, Minnesota-based company will see its gross margin decline by as much as 1 percentage point in the fourth quarter, Chief Executive Officer Brian Dunn said on a Dec. 15 conference call with analysts.

Americans are also buying more cars. Sales of cars and light trucks rose to a 10.9 million unit annual pace in November, up 4.5 percent from the previous month, according to industry data. The rate was the highest since 14.1 million in August, when the governments “cash-for-clunkers” plan expired near the end of that month.

Auto sales probably contributed to a gain in orders at factories. Orders for durable goods, those meant to last at least three years, rose 0.5 percent in November after a 0.6 percent drop, according to the median estimate ahead of a Dec. 24 report from the Commerce Department.

Excluding demand for transportation equipment, which tends to be volatile, orders probably increased 1 percent, the survey median showed.

Consumer Confidence

A slowdown in the pace of job cuts and higher stock prices are boosting consumer sentiment. The Reuters/University of Michigans final gauge of December consumer confidence on Dec. 23 is projected to climb to 73.7, its highest level in almost two years, from 67.4 in November.

The Standard & Poors 500 Index has risen 63 percent from a 12-year low in March, closing at a 14-month high on Dec. 14.

Lower interest rates, cheaper homes and a homebuyer tax credit are bolstering a housing market that contributed to the worst economic slump since the 1930s.

Home Sales

The National Association of Realtors is expected to report Dec. 22 that purchases of existing homes rose 2.5 percent in November to an annual pace of 6.25 million, the highest level since February 2007, according to the survey median.

The Commerce Department on Dec. 23 may report sales of new homes rose 1.9 percent to a 438,000 annual pace last month, the fastest since August 2008, according to the Bloomberg survey median.

Gains in the housing market may prove uneven as foreclosures mount. Some 306,627 properties received a default or auction notice or were seized by banks last month and a similar number is expected for December, according to Irvine, California-based RealtyTrac Inc.

The governments final figure for third-quarter gross domestic product may show the economy expanded at a 2.8 percent annual rate, matching last months estimate, according to the survey median. The Commerce Department will report the data on Dec. 22.

                           Bloomberg Survey  ================================================================                         Release    Period    Prior     Median Indicator                 Date               Value    Forecast ================================================================ GDP Annual QOQ%          12/22      3Q F      2.8%      2.8% Personal Consump. QOQ%   12/22      3Q F      2.9%      2.9% GDP Prices QOQ%          12/22      3Q F      0.5%      0.5% Core PCE Prices QOQ%     12/22      3Q F      1.3%      1.3% Exist Homes Mlns         12/22      Nov.      6.10      6.25 Exist Homes MOM%         12/22      Nov.     10.1%      2.5% FHFA HPI MOM%            12/22      Oct.      0.0%      0.2% Richmond Fed Index       12/22      Dec.       1         4 ABC Conf Index           12/22    Dec. 21     -45       -44 MBA Mortgage Applications12/23    Dec. 19     0.3%      n/a Pers Inc MOM%            12/23      Nov.      0.2%      0.5% Pers Spend MOM%          12/23      Nov.      0.7%      0.7% PCE Deflator YOY%        12/23      Nov.      0.2%      1.6% Core PCE Prices MOM%     12/23      Nov.      0.2%      0.1% Core PCE Prices YOY%     12/23      Nov.      1.4%      1.5% U of Mich Conf. Index    12/23     Dec. F     73.4      73.7 New Home Sales ,000s    12/23      Nov.      430       438 New Home Sales MOM%      12/23      Nov.      6.2%      1.9% Initial Claims ,000s    12/24     19-Dec     480       470 Cont. Claims ,000s      12/24     12-Dec     5186      5175 Durables Orders MOM%     12/24      Nov.     -0.6%      0.5% Durables Ex-Trans MOM%   12/24      Nov.     -1.3%      1.0% ================================================================ 

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In announcing the recall, the government said consumers should immediately stop using the seats carrying handle. The bolts that attach the handle to the seat can loosen, causing the handle to possibly separate and creating a fall hazard for babies.

The recall involves Safety 1st, Cosco, Eddie Bauer and Disney branded infant car seat carriers with certain model numbers. They were sold at department and childrens product stores nationwide from January 2008 through this month.

The recall was announced on Friday by the Consumer Product Safety Commission, National Highway Traffic Safety Administration and Dorel Juvenile Group.

The traffic safety agency said consumers should not use the handle until a repair kit has been installed. The repair kit includes new screws that consumers can attach to the seat carriers. They can order these free repair kits by contacting Dorel at 866-762-3316 or visiting http://www.djgusa.com/safety-notice .

“You dont want to take a chance by using this recalled car seat carrier, until you have the repair kit in place,” said Patty Davis, a spokeswoman for the Consumer Product Safety Commission. “The handle can fall off and the car seat carrier can drop, injuring your infant.”

The traffic safety agency said the car seat is safe for use in a vehicle because it meets federal safety standards. The recalled products were sold with strollers, which are not affected by the recall.

Vinnie DAlleva, general manager for Dorel Juvenile Group, said safety is the companys top priority and it is working closely with government agencies to get the word out to parents about the recall.

Officials from the Consumer Product Safety Commission and the National Highway Traffic Safety Administration could not say when the government first received complaints about the car seat carriers, which were on the market for about two years.

The baby seat carriers were made in China from January 2008 to April 2009. About five months later, on Sept. 1, 2009, the traffic safety agency began a preliminary evaluation about the problems, according to a report that Dorel Juvenile Group sent to the agency on Thursday.

Dorel has recalled a number of products this year. Recent recalls including 28,350 Maxi-Cosi Mico infant seats and more than 131,000 units of Safety 1st SmartLight stair gates, products often placed at the top of stairs.

The company also recalled this year 76,600 Eddie Bauer Soothe & Sway play yards with rocking bassinets after reports that several babies had their faces pressed against the bassinets sides or bottoms and one child turned blue.

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Banks flatly oppose a new consumer agency, arguing their current regulators can handle the task. The U.S. Chamber of Commerce has weighed in with a $2 million ad campaign against the plan. And some industry claims, particularly those from bankers back home, have proved persuasive with many lawmakers.

Ahead lie enormous obstacles: potentially debilitating amendments on the House floor and, ultimately, a tougher Senate landscape, where Republican support is essential to passage of any new financial regulation scheme.

“If they are insisting on a separate agency, a stand alone agency, its going to be difficult to do a bipartisan bill,” Sen. Richard Shelby of Alabama, top Republican on the Senate banking committee, said in an interview. “I wouldnt be interested in a stand alone consumer agency.”

The committees Democratic chairman, Sen. Christopher Dodd of Connecticut, has championed the agency and voiced frustration over the industry criticism.

There are “all sorts of ways” to address consumer protection, Dodd said in a brief interview, and emphasized the need to re-regulate large financial institutions so they cant again trigger catastrophic failures that ripple throughout the economy.

“Of all the things were doing, this fixation and this preoccupation with that one issue is a little misplaced,” he said of attacks on the consumer agency.

Hints of looming pitfalls for a new consumer agency were evident in the debate this week before the House Financial Services Committee. Even there, where the presidents party holds a 42-29 edge, Obama didnt get all he wanted. Up until the end, White House aides buttonholed individual members, fighting unsuccessfully against yet another exemption to the powers of the proposed consumer protection agency.

The panels chairman, Rep. Barney Frank, D-Mass, acknowledged later that of all the aspects of financial regulation that he is contending with, the consumer agency was politically the most difficult. Indeed, consumer advocates applauded him for preserving as many consumer protections as he did.

Still, Travis Plunkett of the Consumer Federation of America called the bill “battered and bruised.”

Obama had called for a robust agency to police the fine print of credit cards, mortgages and other services ranging from payday loans to auto financing. The president wanted to make banks offer standardized “plain vanilla” mortgages, simple no frills loans that customers could compare to more elaborate mortgages. He wanted to make lenders communicate with their customers more clearly. And he wanted to invest the new agency with power to examine bank books, along with the other regulators already checking banks for their safety and soundness.

As the legislation stands now, all those measures are gone or compromised.

Moderate committee Democrats succeeded in exempting thousands of banks from examination by the consumer agency, though theyd still have to abide by its rules. They argued that small community banks would be overburdened with regulators and hadnt been the cause of the financial crisis anyway. But the standard measure of a community bank is one that holds assets of $1 billion or less. There are about 7,500 such banks across the country.

The committee, however, decided to make any bank with assets under $10 billion off limits to the new consumer agencys examiners. There were also exemptions for retailers, title insurance providers, and, finally, auto dealers, although the scope of the latter is somewhat uncertain.

It was the auto dealers exception that the White House fought to no avail Thursday. While the agency would still regulate firms that provide auto financing themselves, consumer advocates say dealers are the ones who make the financing pitch no matter who actually makes the loan and should be equally covered.

The Obama administration also wanted states to have the right to write consumer laws that are tougher than federal regulations. Facing opposition from some moderate Democrats, the committee adopted a compromise that gives federal regulators the right to pre-empt state laws on a case-by-case basis.

In many instances, the changes had grudging support from most Democrats but passed by voice vote with the backing of committee Republicans. Ultimately, though, only one Republican voted for the final legislation.

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Speaking at Federal Hall in lower Manhattan today, Obama said Wall Street firms must accept “common-sense” regulations to avoid another market meltdown and asked his listeners to “embrace” the proposals instead of fighting them. He pushed for creation of a Consumer Financial Protection Agency to rein in deceptive practices, a systemic risk regulator to monitor the largest firms, and authority to wind down those in danger of failing.

Congress may be reluctant to enact regulations if they increase costs, said Kevin Petrasic, former special counsel at the Office of Thrift Supervision and now an attorney at Paul, Hastings, Janofsky and Walker LLP in New York. If the reforms make credit more expensive for consumers and households, “thats a hard sell for any member to make to his or her constituents,” Petrasic said. “The challenge will be how to prevent those unintended consequences.”

Drawing Support

The Financial Services Roundtable, a Washington-based group representing 100 of the industrys biggest firms, supports Obamas plan for a systemic regulator and failure resolution, while opposing the consumer agency, according to a statement today. The watchdog role should go to existing regulators, said Chief Executive Officer Steve Bartlett in the statement.

“Bold, effective and comprehensive reform is long overdue,” Bartlett said.

The House of Representatives approved a measure in July limiting incentives in executive pay that might spur excessive risk taking.

“All of us who are in the financial services sector have to take a little bit more responsibility,” Citigroup Inc. Chairman Richard Parsons said today in an interview outside the hall before Obama spoke. “Thats why some of us are here, to show that were prepared to do our part.”

Parsons said there “probably will be a little bit more regulation, but the significance of it is the fact that the president wants to work with Wall Street.” New York-based Citigroup last year got a $45 billion injection from the U.S. bailout program, and $25 billion of those funds were converted into a 34 percent ownership stake.

Council of Regulators

As for pay curbs, the government is “coming around to a better understanding” of competitive pressures on Wall Street, Parsons said. “Weve got to stay competitive. Everybody gets it in sports. If you want the best players, youve got to compete for that talent.”

The central banks case for getting the role was weakened when it agreed to let American International Group Inc. pay $165 million in bonuses after getting U.S. bailout funds, Frank said today during a Bloomberg Television interview in New York.

Taking a Hit

“The Fed took a hit when the AIG bonuses came and it was connected to them,” said Frank, a Massachusetts Democrat. “I think the Fed has learned its lesson, but as a result of that and some other things, there will be a council.”

Banking trade groups are seeking to head off the consumer agency, which they contend will make it impossible to offer the variety of loans and accounts that customers demand.

Edward Yingling, president and chief executive officer of the American Bankers Association, said that while his organization agrees with much of Obamas speech, it doesnt see the need for the consumer protection agency.

“Were in general agreement of the need for comprehensive reform in the broad areas the administration has targeted,” Yingling said in a statement. The organization would like “to avoid an expansive new bureaucracy for consumer issues,” he said.

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Fed officials expected the pace of the recovery to “pick up” in 2010, but there was a range of views - and considerable uncertainty - about the likely strength of the upturn because of concerns about how consumers will behave.

After being pounded by the recession, consumer spending finally appeared to be leveling out, the housing market was firming and manufacturing was stabilizing, the Fed said. Plus, the outlook for other countries economies improved, auguring well for the sale of U.S. exports.

All that strengthened the confidence of Fed officials that “the downturn in economic activity was ending.” They also repeated a prediction that the economy would start growing again in the second half of this year. That expected growth will be helped by President Barack Obamas $787 billion package of tax cuts and increased government spending, they said.

Against that backdrop, the Fed at its August meeting, announced that it would gradually slow the pace of its program to buy the remainder of $300 billion worth of Treasury securities and shut it down at the end of October, a month later than previously scheduled. The program is designed to force interest rates down for mortgages and other consumer debt, and spur Americans to spend more money.

The Fed also did not change another program that aims to push down mortgage rates. In that venture, the Fed is on track to buy $1.25 trillion worth of securities issued by mortgage finance companies Fannie Mae and Freddie Mac by the end of the year.

“With the downside risks to the economic outlook now considerably reduced, but the economic recovery likely to be damped” Fed policymakers agreed that it didnt need to either expand or cut back those programs.

Summing up the Fed minutes, “the overriding theme is that the economy was just beginning to turn around,” said Stephen Stanley, chief economist at RBS.

Fed officials suggested consumers will be a wild card in the unfolding recovery.

A “poor” jobs market, evaporated wealth from decimated home and stock values, hard-to-get credit and wages that arent supposed to advance sharply anytime soon mean consumers are still facing “considerable headwinds,” the minutes said. How consumers behave is crucial to the recovery because their spending accounts for roughly 70 percent of all economic activity.

“With these forces restraining spending, and with labor income likely to remain soft, (Fed) participants generally expected no more than moderate growth in consumer spending going forward,” the Fed minutes stated.

Unemployment - now at 9.4 percent and expected to top 10 percent this year- is the biggest burden facing American consumers. Another source of uncertainty: the extent to which consumers will sock more money into savings, the Fed said.

“We suspect that it wont raise interest rates possibly until 2011,” said Paul Dales, economist at Capital Economics Ltd.

As a result, commercial banks prime lending rate, used as a peg for rates on home equity loans, certain credit cards and other consumer loans, will stay at about 3.25 percent, the lowest in decades.

Given weakness in the job market and that factories - while improving - are far from full throttle, inflation should stay contained, the Fed said. Fed officials did, however, acknowledge that some on Wall Street have expressed worry that the central banks aggressive actions and the federal governments bloated budget deficit will spur inflation later on.

To address those concerns, the Fed said it is important to keep sending the message that it has the will and the tools necessary to reel in the trillions of dollars it has pumped into the financial system to revive the economy.

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“Optimism on the economy has faded,” Sentje Diek, an energy analyst at HSH Nordbank AG, said by phone from Hamburg. “The markets reacted badly to the consumer sentiment report.”

Crude oil for September delivery fell as much as $1.82, or 2.7 percent, to $65.69 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the lowest since July 31. It was at $66.12 at 10:01 a.m. London time. The contract had plunged 4.3 percent on Aug. 14 after the U.S. consumer sentiment index fell to a five-month low.

Brent crude oil for October settlement declined as much as 2.5 percent on Londons ICE Futures Europe exchange and was down $1.31, or 1.8 percent, at $70.13 a barrel at 10:02 a.m.

“Perhaps the recession is over but given that consumer spending is responsible for more than two-thirds of the U.S. economy, the recovery is in doubt,” said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania.

Storm Comes Ashore

Tropical Storm Claudette, the first to make landfall in the U.S. this season, crossed the coast of Florida at about 1.10 a.m. local time bringing winds of 50 miles (85 kilometers) per hour, the National Hurricane Center said.

Claudettes center passed over the Florida panhandle, which is east of the majority of oil and gas production platforms in the U.S. Gulf of Mexico.

“The supply risk premiums coming out of the hurricane season will be relatively mild,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. Investors are “not going to be quite as jittery given we dont have that demand-supply tightness” of previous years, he said.

Rigs and platforms in the northern Gulf of Mexico accounted for about 23 percent of U.S. oil production last year, according to government data.

Last September, Hurricane Ike shut almost all the regions oil output and about 20 percent of U.S. refining capacity.

Uncertain Direction

“This is likely to be a period of uncertain direction in both prices and fundamentals given activity has stopped declining but has yet to exhibit meaningful growth,” Goldman commodities analysts led by David Greely said in a report today. “This was certainly evident in Fridays price action where the positive U.S. industrial production report was overshadowed by an unexpected decline in U.S. consumer confidence.”

Stocks in Japan fell on concern the countrys recovery wont last after the Cabinet Office said the economy grew for the first time in five quarters. The Nikkei 225 Stock Average retreated as much as 3.1 percent on concern growth will falter once governments worldwide complete $2 trillion in stimulus spending.

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