Fed Policymakers to Discuss Interest Rates

L.A. Times Archives

Sept. 18, 2006 12 AM PT

From the Associated Press

The arrival of a report card makes even an A student nervous, so although Wall Street is mostly confident that the Federal Reserve will leave interest rates untouched when it meets this week, the market is still anxious to learn how the central bank perceives the threat of inflation and the overall economy.

The meeting is the first since the Fed interrupted a two-year string of 17 straight rate increases last month by leaving unchanged the rate that banks charge one another for overnight lending.

The Fed and Wall Street don’t always agree on how to best shepherd the economy -- in this case, toward a soft landing. Some investors have voiced concerns that the Fed, in its zeal to contain interest rates, had perhaps overreached and slowed growth too quickly by making access to money more expensive.

But there appeared to be little airing of those concerns late last week as stocks marched to within sight of their 2006 highs amid a precipitous drop in oil prices and reassuring figures from the Labor Department. The consumer price index, the key measure of inflation, was in line with forecasts and lent support to the notion that the economy is decelerating smoothly.

The Fed’s comments on the health of the economy generally play an enormous role in shaping investor sentiment on Wall Street.

Scott Fullman, director of investment strategy at Hapoalim Securities USA, believes that if the Fed meeting doesn’t bring any surprises, the markets could be poised to enter a strong period.

“We are optimistically cautious here going into the next five weeks or so,” he said, adding that he expected benchmarks such as the Dow Jones industrial average and the Standard & Poor’s 500 index to show strong performances this year. “The markets are showing some real resilience. I’m looking for new highs with the Dow and the S&P; before the end of the year.”

Although investors will focus on Wednesday’s Fed meeting, there are other reports Wall Street will be eager to examine. On Tuesday, the Commerce Department’s report on August housing starts is expected to provide the latest evidence that the housing sector is cooling. Aside from a modest lift on Friday, home builders’ stocks have taken a drubbing lately after several companies issued profit warnings.

Also Tuesday, the Labor Department is expected to release the August producer price index, which measures the wholesale cost of goods.

On Wednesday, before the Fed meeting, comes a weekly report on crude inventories. Last week, oil prices briefly moved higher after the Energy Department reported a decrease in the country’s crude inventories.

Thursday brings the Labor Department’s weekly report on initial jobless claims.

Also Thursday, FedEx Corp. is expected to report a first-quarter profit of $1.52 a share. The shares, which have traded in a range of $76.81 to $120.01 in the last 52 weeks, closed Friday at $105.90.

Companies that could provide insight into how consumers are spending are also due to report Thursday. General Mills Inc. is seen as likely to show a first-quarter profit of 67 cents a share. The maker of Cheerios closed at $52.96 on Friday.

The Week Ahead

Today

* Commerce Department updates the U.S. current-account deficit, considered the broadest measure of trade. It probably widened last quarter to the second-largest on record as the trade gap expanded and more interest was paid.

* Treasury bill auction.

Tuesday

* Labor Department reports on producer price index for August.

* Commerce Department reports on housing starts for August.

* Oracle Corp. releases first-quarter earnings.

Wednesday

* Federal Reserve’s Open Market Committee meets to discuss interest rates.

* Circuit City Stores Inc. releases second-quarter earnings.

Thursday

* Labor Department reports on weekly jobless claims.

* Commerce Department reports on international trade for July.

* Freddie Mac reports on mortgage rates.