July 2, 1997
U.S. holds line on interest rates
WASHINGTON (AP) - Confronted with new evidence that the U.S.
economy is slowing, the Federal Reserve has decided to leave interest
rates unchanged for now.
The central bank adjourned a two-day meeting Wednesday without
making a change in its benchmark federal funds rate, the interest that
banks charge on overnight loans. That rate has been at 5.5 percent
since March.
Wall Street took the Fed decision, which had been widely expected,
pretty much in stride with stocks and bonds showing little reaction.
The Bank of Canada raised its lending rate by 25 basis points to 3.5
per cent last week to prop up the dollar.
The Fed decision followed release of a government report earlier in
the day showing that orders to U.S. factories declined 0.7 percent to a
seasonally adjusted $323.3 billion US. It was a bigger drop than the
0.2 percent predicted by economists.
The May drop followed an increase of 1.4 percent in April, revised
up from a previous estimate of 1.2 percent, and a decrease of 1.7
percent in March, revised from 1.3 percent, the Commerce
Department said.
The backlog of unfilled orders at factories were unchanged following
decreases in April and March. That's a sign that manufacturers were
keeping up with the flow of new orders and that there is little danger
for now of inflation-causing delivery delays and shortages.
Meanwhile, factory shipments - a measure of current production -
declined 1 percent, also the second drop in three months. Inventories
rose 0.4 percent, the 10th increase in 11 months.
Analysts believe that will serve as a restraint on production as
factory owners moderate output to allow the overhang to be worked
off.
It all fit well with economists' belief that overall growth, after soaring
at a decade-high 5.9 percent annual rate in the first quarter, slowed
dramatically to around a 2 percent rate in the April-June period.
In May, orders for both durable goods - big ticket items designed to
last at least three years - and nondurable goods fell 0.7 percent.
Within durable goods, decreases in orders to steel mills, metal
fabricating plants, engine and turbine factories, aircraft plants and
computer manufacturers more than offset gains to makers of
communications equipment and shipbuilders.
The largest decreases in nondurable goods came in paper and
rubber products and clothing.
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