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To: Les H who wrote (46277)	4/14/2000 3:22:00 PM
From: Les H	Respond to of 99985

ANALYSTS SEE US CORE CPI RISE RAISING ODDS OF 50 BP RATE HIKE By Steven K. Beckner WASHINGTON (MktNews) - With some alarm, analysts said the unexpectedly big rise in U.S. core consumer price inflation last month heightens the chances that the Federal Reserve will raise short-term interest rates 50 basis points at its May 16 Federal Open Market Committee meeting. Even after considering special factors, Fed watchers expressed concern that underlying inflation is starting to trend up in the face of strong demand. The Labor Department announced that the consumer price index rose 0.7% overall in March, as the energy component surged 4.9% and food rose 0.1%. Excluding food and energy, the core CPI rose 0.4%, twice as much as expected. It was the largest monthly gain in the core since January 1995. Over the past three months, core CPI has risen at a 3.2% annual pace, compared to just 1.9% for all of last year. The Bureau of Labor Statistics attributed the acceleration to a 4.1% first-quarter rise in the index for services less energy services, up from 2.7% last year. "In particular, rising costs for shelter, for public transportation and for medical care services contributed to the acceleration," the BLS stated in its release. A 3.2% rise in the cost of lodging away from home, following a 0.3% drop in that component in February, helped swell the March core CPI. Meanwhile, the Fed reported that industrial production rose 0.3% in March, while manufacturing output rose 0.4% -- both representing pick-ups from February. The overall rate of capacity utilization was down a tenth to 81.4%, while manufacturing cap-u remained 80.6%. Analysts tended to look at the inflation numbers more in reference to Thursday's data on retail sales, which showed a much larger than expected 1.4% gain excluding autos (0.4% total). The report seemed to confirm Fed concerns about "excess demand." Richard Berner, chief U.S. economist for Morgan Stanley said "these (CPI) numbers, to my way of thinking, reflect the beginning of the upcreep of core inflation I've been expecting." Berner said special factors swelled the core CPI, but even allowing for that, he said there appears to have been an acceleration. Pointing to the 3.2% annual core CPI rise in the January through March period, he said "inflation has clearly moved up from the 2% range to the 2 1/2% range and I think to the 2 1/2 to 3% range." "To the Fed this represents a sign that (inflation) is going to continue to move up further," Berner said, adding that the strength of demand "is clearly elevating the risk in that regard." Berner said he expects the Fed to "continue to tighten in a gradual way ... until they sense that the inflation risks have peaked." He said he expects to see the federal funds rate, now 6%, at 6.75% by year-end, with further rate hikes possible next year. Thus far, "the economy has remained resilient in the face of rising rates," Berner observed, because the economy is "more flexible" and because "financial conditions are very supportive of strong growth" -- a point made Wednesday by Fed Governor Laurence Meyer. Michael Moran, chief economist for Daiwa Securities, said "the CPI number was not a good one." "There were some special factors that lifted (the core CPI), and you can whittle it down somewhat, but it's still not a good read on inflation," Moran said. He estimated that, excluding special factors, the core CPI would have been up 0.3%. "It's the type of number that assures another adjustment of policy in May," Moran continued. "It will lead the FOMC to discuss a 50 basis point move." He doubted the FOMC will decide to raise rates that much, unless they get "indications that demand is continuing to grow vigorously and there is additional evidence inflation is starting to accelerate." Moran says he expects "two to four additional moves from where we are now" and added that "the probability of four moves is starting to rise." Warburg Dillon Read economist Jeff Palma said the CPI report showed that inflation is "moving in the wrong direction given the strength of growth." He said core inflation now appears to be "in the mid-twos and moving higher." He said the locus of strength in prices for non-energy services is "worrisome" because it suggests the increase in core prices is "not necessarily going to get reversed." Palma said the CPI report "raises the odds of a 50 basis point move in May. ... The voices at the Fed talking about a 50 are only going to get louder." He and others said the outcome of the May meeting will depend on furtherm indications of inflation from the employment cost index and the April producer and consumer price reports as well as on retail sales. "You can make a case that things are worse from the growth and inflation side" than at the March 21 FOMC meeting. Real GDP growth now looks closer to 6% than 4%, he noted. He said he expects the funds rate to be 7% by the end of the year. The industrial production figures got much less attention, but Palma said "manufacturing continues to grow pretty strongly." Berner said "the fundamentals for accelerating output are still very much in place," because there is "broad-based demand strength."

To: Les H who wrote (46277)	4/14/2000 5:42:00 PM
From: Les H	Read Replies (1) \| Respond to of 99985

US STOCKS TUMBLE; CPI WORRIES BUT DAY-TRADERS BLAMED NEW YORK (MktNews) Momentum players pulled their positions Friday creating large air-pockets for many stocks especially among technologies. Dealers said margin calls have likely contributed to the declines and may pose further danger as the afternoon wears on. No one wants to be long. This is the blow out of the lows, the capitulation of the dip-buyers, said Jay Suskind, director of trading at Ryan Beck & Co. Suskind said the higher-than-expected 0.7 percent rise in the consumer price index triggered the sell-off, but blamed the extent of the decline on a pullout by momentum players. Michael Lyons, head of trading at Dean Witter, said an urgency among momentum players is responsible for the damage. Theyre bailing out at once. They take them down 2 points at a time and theres no questions asked. Theres nothing but air under the bids, he said. At 1:05 p.m. ET, the Nasdaq was leveling off, down 197.59, at 3429.28. The index had been down as much as 301 points at 3375 during the session. It opened the week at 4446.45. Despite lower P/Es, the Dow Industrials were not immune, down 360.28, or 3.3 percent, at 10563.27. Dealers were not surprised that the losses hit on a Friday, when day-traders typically exit positions ahead of the weekend. They also pointed to the approaching April 15 tax deadline as a factor, as many investors and speculators alike need to raise cash for tax payments. Strong earnings from Sun Microsystems, up 1 7/8 at 79 5/8 [SUNW], did little to stem the decline. Theyre running right over earnings now, said Lyons. Earnings announcements took a breather on the session with the release schedule to hit full stride next week, but few right now care. No ones thinking about Monday right now, said Lyons. Losers littered all sectors, especially financials as the CPI sparked a reversal of recent sector gains. American Express down 9 1/8 at 136 7/8 [AXP] and JP Morgan down 5 1/8 at 126 3/8 [JPM]. Among others, Microsoft down 3 7/8 at 75 3/8 [MSFT], Intel down 6 1/8 at 115 [INTC], Procter & Gamble down 3 at 66 [PG], and General Motors down 4 at 84 [GM].

To: Les H who wrote (46277)	4/14/2000 10:30:00 PM
From: Czechsinthemail	Respond to of 99985

Looking at the details of the CPI and consumer sentiment reports suggests that much of the dreaded inflation may prove ephemeral. Much of the current visible inflation is coming from energy. Since that is generally discounted (and now seems to be declining), the second area is in services. Much of this was in housing and disproportionately high costs for shelter away from home. This reflects the higher cost of hotel and vacation rentals -- which derive directly from the wealth effect as more money gets spent on vacations. And a significant figure is that the overall rate of capacity utilization was down a tenth to 81.4%. This is not inflationary and suggests that capacity expansion may have been accelerating faster than overall economic demand. The wealth effect can also be seen in the University of Michigan's preliminary index of consumer sentiment for April, which rose to 110.2 from 107.1 in March. The chill that comes with a significant market correction will tend to reverse the prosperous feeling for many. As that happens, the inflated sectors of conspicuous consumption and discretionary spending will be reined in somewhat. And that will tend to reverse a lot of the visible CPI increase fairly quickly. The news from Main Street has not been very inflationary for some time. The Labor Department reported average weekly earnings adjusted for inflation fell 0.4 percent last month, matching February's decline. This is a more significant "core" figure. It is a central reason why low unemployment has not produced significant inflation. Now, with real earnings declining and a significant stock market decline erasing a lot of the compensating gains in portfolio wealth, the likelihood of belt-tightening and a slowing economy is very great. In fact, if the decline spreads to international stock markets, we may see a more pronounced global slowing with more disinflationary effect. The gap between those at the top of the economic pyramid and the rest, which has been fed by phenomenal appreciation in the stock market, is often not noticed by those at the top. The marginal poverty of many helps keep wage costs low. More people work longer hours without a balancing increase in pay. Many have been able to balance flat earnings and increase their personal wealth through direct or indirect participation in the stock market. But as the stock market drops, more people begin to feel a contraction that slows the economy. It is the dark side of market forces as a falling tide grounds many boats. Though the wisdom of the moment is talking about increasing inflation and Fed tightening, I think we are likely near the end of interest rate increases. A slowing economy or at least a slowing rate of growth over the next couple of months coupled with a tempering of irrational exuberance in the markets should provide sufficient justification for the Fed to hold off on further rate increases and perhaps begin easing. If not, the likelihood of sliding into a recession becomes a much more present danger.