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The Associated Press/WASHINGTON

AP Economics Writer

End not in sight for interest rate hikes

MAY. 3 5:33 P.M. ET The Federal Reserve, worried about climbing inflation, pushed a key interest rate higher Tuesday and signaled that Americans’ borrowing costs are likely to keep climbing in the months ahead.

In response, commercial banks began lifting their prime lending rates, which are used for many short-term consumer and business loans.

Federal Reserve Chairman Alan Greenspan and his colleagues, sticking to a course of gradually raising rates, nudged up the federal funds rate by one-quarter of a percentage point, to 3 percent. It was the eighth increase of that size since the Fed began to tighten credit last June, and it left the rate at the highest level since the fall of 2001.

Banks’ prime lending rates were rising a quarter-point to 6 percent, also the highest since 2001.

The federal funds rate, the interest banks charge each other on overnight loans, is now triple the 1 percent rate — a 46-year low — that prevailed before the Fed embarked on its rate-raising campaign.

Fed policy-makers, walking a tightrope, are confronted with two challenging economic forces: rising inflation pressures on the one hand and slowing economic growth on the other.

Higher interest rates are a defense against rising inflation. But when it is more expensive to borrow money, some consumers and businesses are less inclined to spend and invest, factors that would further chill an already cooling economy.

The policy-makers, in a brief statement issued after their closed-door meeting, acknowledged that the economy had hit a rough patch in early spring. "The solid pace of spending growth has slowed somewhat, partly in response to the earlier increases in energy prices," they said.

Oil prices soared into record territory in March and hit a new peak of $57.27 a barrel at the beginning of April — straining household and business budgets. Prices have since retreated and now hover above $50 a barrel.

The Fed also drew fresh attention to rising prices in general.

"Pressures on inflation have picked up in recent months and pricing power is more evident," the statement said, a reference to businesses finding it easier to raise prices to customers. But it tempered that inflation warning with an assessment that longer-term inflation expectations remain "well contained." The Fed also said underlying inflation — which excludes energy and food prices — is "expected to be contained."

Against that backdrop, the Fed said it could continue on its path of gradually raising rates. In Fed parlance that is stated as "at a pace that is likely to be measured." To analysts, that phrase translates into quarter-point increases.

On Wall Street, there was little reaction. The Dow Jones industrials gained 5.25 points to close at 10,256.95.

Private analysts expect the Fed to boost rates by another quarter-point at its next meeting June 29-30 and probably through much of this year. That said, they also believe the Fed’s future rate decisions could become increasingly more dependent on how inflation and economic activity unfold.

"The Fed, while acknowledging the slowdown in the economy, is focused more on inflation. That means their work is not done," said Stuart Hoffman, chief economist at PNC Financial Services Group. "The Fed will become even more of a data hound and not quite as much on automatic pilot" when it comes to raising rates.

For economists and investors, that’s a subtle shift in their perceptions. At the Fed’s previous meeting, on March 22, policy-makers’ hawkish tone about inflation ignited speculation that the central bank might raise rates more aggressively — possibly by a bolder half-point — in the summer. That spooked Wall Street, sending stocks tumbling.

Since that meeting, however, the economy has flashed signs of slowing.

Over the first three months of the year, the economy grew at a 3.1 percent annual rate, the slowest in two years as energy prices restrained spending by individuals and companies. Some economists believe growth in the April-to-June period could be even less.

Employers added just 110,000 jobs in March, the fewest in eight months. April’s employment report comes out Friday, and economists predict it will show that 170,000 jobs were created.

Fed policy-makers, however, said labor market conditions "continue to improve gradually."

Inflation, meanwhile, is climbing. Driven by expensive gasoline and energy products, overall consumer prices jumped by 0.6 percent in March, the biggest increase since October.

Even more troubling to economists was the 0.4 percent rise in core inflation — a gauge that excludes energy and food prices. That was the largest increase in 2 1/2 years.


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Employers relying on personality tests
Increasingly, applicants’ fates sealed before live interview
By Ariana Eunjung Cha

Updated: 7:09 a.m. ET March 27, 2005

UNIVERSAL CITY, Calif. – The 10 young men and women were there to impress.


Decked out in their best suits, they were vying for hourly work as sales associates, ride operators, drivers and cooks at Universal Studios Hollywood theme park and its adjoining retail unit. When asked their favorite movie, they mentioned ones they knew were produced by Universal. When asked what they detested most about their previous jobs, they said not much. And when asked what single word would describe them best, several quickly offered "happy."

On the surface, they all seemed promising. But recruiter Nathan Giles knew better.

Even before the candidates had stepped through the door for the group interview, their fate had been largely determined by a computer. They had taken a 50-minute online test that asked them to rate to what degree they agreed or disagreed with statements such as, "It’s maddening when the court lets guilty criminals go free," "You don’t worry about making a good impression" and "You could describe yourself as ‘tidy’."

A score in the "green" range for customer service gave an applicant an 83 percent chance of getting hired, "yellow" a 16 percent chance and "red" a 1 percent chance.

Over the past few years, personality assessment tests have moved from the realm of experiment to standard practice at many of the nation’s largest companies, including the Albertson’s grocery chain and retailers such as Neiman Marcus and Target. A recent survey found that about 30 percent of all companies use personality tests in hiring. To many companies, the tests are as important, if not more important, than an applicant’s education, experience and recommendations.

Some firms give the computer the power to conduct the first screening of candidates and do not bother interviewing applicants unless they score above a certain level. Universal, however, prefers to put everyone through an interview on the chance that assessments are wrong.

Usually they aren’t.

"In almost every case, the results of the test are what we see in their interviews," said Giles, who has been at his job for two years.

Universal said the online exams have made a measurable difference in the quality of its workforce. Employee retention and customer satisfaction levels are up, while absenteeism and theft are down.


But the growing use of employment exams worries some, who say many aptitude tests lack rigorous review by professionals in the field and are crafted too narrowly to accurately judge one’s eventual performance.

"You are really doing a disservice to the complexity of human individuality," said Dan P. McAdams, a professor of psychology and human development at Northwestern University.

Psychologists have long debated whether personality can be reduced to a set of numbers, like a person’s weight, shoe size or eyeglasses prescription. But that has not stopped people from trying. The Myers-Briggs Type Indicator, which measures four qualities of a person — introversion/extroversion, sensing/intuition, thinking/feeling, judging/perceiving — is often used to help match people up with careers. The Minnesota Multiphasic Personality Inventory, which attempts to measure propensity for substance abuse or other pathologies, is regularly used to assess candidates for sensitive positions in police departments, banks, nuclear plants and the like. The Neuroticism, Extroversion and Openness Personality Inventory breaks personality down into five characteristics that some companies use to assess traits such as management potential.

Today, an estimated 2,500 U.S. firms offer assessments that are mostly variations on these main tests and are geared toward hiring.

"A well-developed test is probably the cheapest and most valuable selection tool an employer can have," said Gary G. Kaufman, owner of Human Resources Consulting near Nashville, who has worked in hiring at J.C. Penney Co. and the Internal Revenue Service. The problem, he said, is that "personality testing in general is a largely unregulated business, which means that anyone can make up a test and put it on the Internet and make any claims they choose about the test."

Some companies, many of which employ teams of PhDs, say they follow rigorous scientific methodology. But some reviews by independent assessors have raised questions. A survey by the Aberdeen Group Inc., a Boston-based technology research firm, found that 49 percent of companies using computerized hiring systems saw no impact on turnover. An American Psychological Association study found little evidence that tests purporting to measure honesty are accurate. The World Privacy Forum and the Electronic Privacy Information Center, privacy advocacy groups, allege that more than a few violate the spirit of privacy laws by asking sensitive questions.

Employers relying on personality tests

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Annie Murphy Paul, author of "The Cult of Personality," which is about the testing industry, said there is a real danger of stigmatizing people who fail certain components of tests. "If we are labeling people liars and thieves even before they have seen any propensity for them to do these things, it is a real injustice," she said.


The company that developed Universal’s test, Unicru Inc., is among the giants in the employment-testing industry. Last year, the Beaverton, Ore., company assessed 11 million applicants, which resulted in 550,000 hires by retailers, grocers, trucking companies and others. Christopher Reed, director of marketing for Unicru, compares the firm’s mission to that of a dating site. "Just like they are trying to match up potential mates, we are basically making a prediction of whether someone is a good fit or not for a job," he said. The firm said its tests have been validated time and again by their success at companies.

Michael L. Marchetti, executive vice president for store operations for the Indianapolis-based Finish Line Inc. chain of sporting-goods stores, said company policy prohibits managers from hiring any candidate who received a "red" rating.

"When you see 70 to 80 percent coming back ‘green,’ why take somebody that’s a risk?" he said.

Universal is among those that will consider hiring someone with a low score. Kay Straky, vice president for human relations for Universal Studios Hollywood, said tests are specific to each job. For example, those applying for a sales might also get questions about basic math skills and honesty, while those seeking positions as drivers might be asked about safety. All, however, measure customer service and dependability

"We need people to be able to smile at work and show up to work. . . . When people come into the park, we want it to be a really positive experience," Straky said.

The company’s recruiting office, where the TV sets play Universal movies like "Shrek 2" nonstop throughout the day, is filled with computers. Each day, dozens of job hopefuls line up to take the online test.

They know the odds are against them: Out of more than 20,000 applicants last year, the company hired 1,900, which represents an admissions rate lower than that for Harvard University.

Travis Beavers, 25, who had recently graduated from City College of San Francisco, was applying for a line-cook job. He said he found the online test fun but long and "kind of confusing" because it was often difficult for him to decide how to differentiate between "strongly agree" and "agree" or "disagree" and "strongly disagree."

Veronica Garcia, a film major who was hoping to work as a sales associate, said she thought part of the reason for the test was to gauge an applicant’s patience. The test took her more than an hour to complete, she said, because her "computer was acting up."

As the candidates sat in the waiting room, a recruiter began to review printouts of their assessment results. Some who came in that day looked like they might work out — others less so. One candidate who wanted to be a dishwasher rated 35 for customer service and 47 for dependability. A rating of "yellow." This person was less likely "to maintain a good mood," the computer cautioned. Another was applying to be a theater attendant and had strong previous experience but scored 10 for customer service, 13 for dependability. A "red" rating. This person might "be quiet or even unfriendly" and might tend to "waste time."

Straky agreed that the person probably was not a good match for Universal. "People come to us because they think it’s a fun job, and it is, but it’s also a hard job. They have to be very dedicated. In the summer it’s 100 degrees and the beach is beckoning just a few miles away."

Staff researcher Richard Drezen contributed to this report.

© 2005 The Washington Post Company

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