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To: James Thompson who wrote (8283)	5/16/1999 5:12:00 PM
From: Jenne	Read Replies (1) \| Respond to of 19700

or.. Federal Reserve Seen Leaning Toward Higher Rates as Trade Deficit Narrows By Vincent Del Giudice, Monee Fields-White and Terry Barrett Fed Seen Leaning to Higher Interest Rates: U.S. Economy Preview Washington, May 16 (Bloomberg) -- Reports on the U.S. trade gap, the budget balance, and housing starts are likely to take a back seat this week to action by the Federal Reserve, which may signal it is leaning toward raising interest rates. The Commerce Department is expected to report Thursday that the U.S. international trade deficit in goods and services narrowed to $18.6 billion in March from a record $19.4 billion during February, analysts said. The month's smaller gap won't point to any real improvement, though. For all of this year, the trade shortfall is on target to top last year's record of $169 billion as consumer demand has sent imports to record levels. Exports have been hurt by anemic demand overseas. ''After February's deficit it would be really hard to post a number that would convince the market the trade deficit is doing anything other than deteriorating,'' said Greg Jones, chief economist at Briefing.com in Jackson, Wyoming. The March deficit is likely to still be a wider shortfall than the U.S. posted in any month before February, Jones said. ''That means trade will continue to be a drag on growth in 1999.'' Friday, the Treasury releases its month budget statement for April, and analysts are projecting a budget surplus of $120.1 billion, just shy of the April 1998 record, reflecting tax revenue generated by the growing economy. The Congressional Budget Office has forecast a record $111 billion budget surplus for fiscal year 1999, which began last Oct. 1, and a $133 billion surplus for fiscal 2000. Last year's surplus was $70 billion. A surplus in 1999 would yield the first back-to-back annual surpluses in four decades. Housing Starts Tuesday, the Commerce Department is expected to report that starts of new housing construction declined 1.1 percent in April to a seasonally adjusted 1.747 million units at a seasonally adjusted rate as mortgage rates moved higher. Also, on Thursday, the Labor Department is scheduled to report that first-time claims for state unemployment benefits declined in the week ended May 15 to a seasonally adjusted 302,000. That's a level consistent with low unemployment. The week's marquee event for the economy, however, is likely to be the meeting Tuesday of the Federal Open Market Committee, the panel that sets U.S. monetary policy. The committee meets following Friday's report showing the largest one-month increase in U.S. consumer prices in almost a decade -- a larger-than- expected 0.7 percent increase in the consumer price index for April. The number roiled investors, who until now had little reason to expect Fed action in the weeks leading up to Tuesday's meeting. The numbers ''raise the probability that they will move to a tightening bias,'' said Tim O'Neill, chief economist at Harris Bank/Bank of Montreal in Toronto. Sixteen of the 30 top bond trading firms surveyed by Bloomberg News expect the Fed policy-makers to adopt a ''bias,'' rather than an actual move, to raise rates, if need be, sometime over the next few months. Announcement Expected If they do set a bias, they may announce it after the meeting under a new policy decided in December aimed at revealing important shifts in members' views. Previously, bias changes had been revealed only when minutes of an FOMC meeting were released weeks later. The Fed has for some time announced actual changes when they are made in the targets for the federal funds on overnight loans among banks and in the discount rate on Fed loans to member banks. The fed funds target has been 4.75 percent since last November following a series of three rates cuts orchestrated by the Fed to calm financial markets after Russia defaulted on its debts. Bloomberg Surveys Date Time Period Indicator BN Survey Prior 5/18 8:30 April Housing Starts 1.747M 1.766M 5/20 8:30 5/15 Initial Jobless Claims 302K 303K 5/20 8:30 March Trade Balance -$18.6B -$19.4B 5/21 2:00 April Budget Statement $120.1B $124.6B Federal Reserve, Treasury Calendar Monday, May 17 Treasury Secretary Robert Rubin speaks at the University of Pennsylvania Commencement. Tuesday, May 18 The Federal Reserve's policy-making panel, the Federal Open Market Committee, meets on interest rates. Wednesday, May 19 New York Federal Reserve Bank President William McDonough speaks at a luncheon, sponsored by the Citizen's Housing and Planning Council. Thursday, May 20 Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert Rubin and Deputy Treasury Secretary Lawrence Summers will testify before a House Bank and Financial Services Subcommittee on the international financial market. Federal Reserve Vice Chairman Alice Rivlin speaks to the World Competitive Cities Congress on ''The Challenges of City Development in a Framework of Federal Policies and the Global Economy'' at the World Bank in Washington. The Federal Reserve releases minutes from the Federal Open Market Committee meeting on March 30. Friday, May 21 Michael Moskow, president of the Federal Reserve Bank of Chicago, will speak at the bank's conference on Global Financial Crisis & Economic Development in Chicago. Federal Reserve Vice Chairman Alice Rivlin speaks to a conference on American cities cosponsored by the Federal Reserve Bank of Philadelphia and the Brookings Center on Urban and Metropolitan Policy in Philadelphia. ©1999 Bloomberg L.P. 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