Economic Data to Open Door to Rate Cut by Fed
U.S. economic figures this week probably will show few signs of accelerating inflation in August, before terrorist attacks pushed up the cost of gasoline.
The subdued inflation outlook gives the Federal Reserve room to lower interest rates for an eighth time this year to bolster the economy, analysts said.
Fed policymakers could lower rates as soon as today, when U.S. stocks are scheduled to begin trading for the first time since the terrorist assaults, analysts said.
The consumer price index probably rose 0.2% last month, according to a survey of analysts by Bloomberg News. The Labor Department’s report Wednesday probably will show that the core price index, which excludes food and energy, increased 0.2%, analysts said.
People already had been reluctant to spend because of flagging confidence and rising unemployment, meaning businesses risk losing customers if they increase prices. The terrorist attacks on the World Trade Center and Pentagon are expected to further depress consumer spending.
The Fed’s survey of regional economic conditions, the “beige book,” probably will suggest on Wednesday that inflation was tame except for energy costs in August and early September, analysts said.
The Fed already has lowered its benchmark overnight bank lending rate seven times this year to a seven-year low of 3.5%. Investors expect the Fed to push it as low as 2.75%--the lowest since the Cuban missile crisis of October 1962--based on trading in fed funds futures for October.
Analysts expect central bankers in other countries also to lower rates and intervene to defend the dollar as soon as today to help ensure that last week’s terrorist attacks don’t roil U.S. stocks or force a global recession.
Federal Reserve Chairman Alan Greenspan, along with Treasury Secretary Paul O’Neill and Securities and Exchange Commission Chairman Harvey Pitt, are scheduled to testify on the health of the U.S. financial system before the Senate Banking Committee on Thursday.
Other economic reports due out this week:
* The Commerce Department today will report on business inventories for July. Analysts expect that stockpiles of unsold goods fell 0.4%.
* The Commerce Department will report on August starts of new-housing construction Thursday. Analysts expect a 2.3% decline.
* The Labor Department on Thursday will issue its weekly report on first-time claims for state unemployment benefits, which analysts expect to exceed 400,000 for a fourth consecutive week.
* Retail sales surveys for the previous week will be released Tuesday by LJR Redbook Research service and Mitsubishi Bank-Schroder Wertheim.
* The American Petroleum Institute on Tuesday issues its weekly report on U.S. petroleum stocks, production, imports and refinery utilization.
