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Strategies & Market Trends : MDA - Market Direction Analysis

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To: Casaubon who wrote (55213)	6/25/2000 10:41:00 AM
From: Haim R. Branisteanu	Read Replies (2) of 99985

Fed Seen Holding Rates Steady As U.S. Economy Slows Filed at 10:14 a.m. ET By Reuters nytimes.com NEW YORK (Reuters) - Although the Federal Reserve is not yet convinced the U.S. economy is slowing, central bankers will likely leave interest rates unchanged at their policy meeting this week while warning of inflation risks ahead. Wall Street economists expect policymakers to sit on their hands at the Federal Open Market Committee (FOMC) meeting on Tuesday and Wednesday. But many think it is too soon for the Fed to declare victory in the battle against inflation. The Fed has already raised short-term rates six times over the past year but most leading Wall Street firms polled by Reuters last week predicted they will increase borrowing costs again in August. ``I think the Fed will wait and see if they've done enough,'' said David Wyss, chief economist at Standard & Poor's. ``There is a lot of tightening still in the pipeline.'' There is mounting evidence that credit tightening over the past 12 months has begun to take a toll on growth, particularly in interest-rate sensitive areas like housing and consumer spending on big-ticket items. But it will take more than just a few weeks of data to convince the Fed that the recent downturn is not an aberration. In fact, even a sharp dip in second-quarter gross domestic product growth might not be enough. Officials are mindful that in the past two years the second quarter has been far weaker than any other and well below full-year growth rates. They may want to see third-quarter numbers before they make up their minds. Inflation is on a faster track this year than last and is already pressing on the upper limits of the Fed's comfort zone. Many at the Fed would like to see the core Consumer Price Index, excluding volatile food and energy prices, running at 2.0 percent or lower. But in May, that rate was up 2.4 percent year-over-year. A resurgence in the price of oil this spring could make for some worsening inflation numbers for June and July and increase the odds of a rate hike at the August FOMC meeting. ``We are going to see some pretty ugly numbers in June and July on CPI because of oil,'' said Wyss. ``Gasoline prices went through the roof.''

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