|
Wholesale prices flat
|
 |
June 9, 2000: 4:00 p.m. ET
May overall index below forecasts, but prices, excluding food and energy, up
|
NEW YORK (CNNfn) - Flat economic numbers released Friday helped bolster analysts' predictions that the Federal Reserve will bypass another interest rate hike this month.
But many cautioned that given the Fed's past behavior, a pass on interest rate hikes this time around doesn't preclude another quarter-point "insurance" hike in the near future, particularly if retail sales do not slow down.
"I would say they're (the Fed) going to take a bye this time around," said John Lonski, senior economist and vice president for Moody's Investors Service. "That's because there ought to be a second consecutive weak retail sales report. We're going so far as to say retail sales are going to go down again after having dropped in April."
Among the economic indicators the government released Friday were wholesale prices, which remained unchanged in May.
The flat result for the U.S. Labor Department's Producer Price Index was below Wall Street forecasts of a 0.3 percent increase, thanks to energy prices that fell 0.5 percent for the month.
The overall index fell 0.3 percent in April.
 The core producer price index, which excludes often-volatile energy and food prices, edged up 0.2 percent. The Briefing.com forecast called for a 0.1 percent rise in the period, the same as the April rate of increase.
The wholesale prices are watched closely as signs of inflation and for a clue as to what the Federal Reserve may do about interest rates. Signs of a slowdown in the economy last week spurred stock prices higher as investors hoped that would deter the central bank from raising rates much further.
Stock futures showed a quick rise after the report, and the markets were up in early trading. But by late afternoon, the markets were mixed, with the Dow Jones industrial average down more than 50 points after a morning rally sent it up more than 90 points. The Nasdaq composite index gained more than 37 points by late afternoon. But Treasury prices were little changed after the report early in the trading day, but edged lower by late afternoon.
The May report should help keep the Fed from raising rates at the June meeting, Kathleen Stephansen, senior economist with Donaldson Lufkin & Jenrette, told CNNfn's Before Hours program Friday.
"We've not seen any inflationary pressure," she said.
But despite the signs of a slowing economy, Stephansen doesn't think the Fed is necessarily finished with raising rates for the year. There's enough strength in the economy, despite the slowdown, to lead to hikes after the June meeting, she said.
"We still have an economy growing above potential. We don't have much slack in the economy. We still have a very tight labor market. We still have an upside risk to inflation," she said. "There's not actual inflation, but an upside risk. As long as there's an upside risk, the Fed won't be happy."
Other analysts agreed.
"I think they're going to take a wait and see attitude," Peter Cardillo, research director for Westfalia investments, told CNNfn's Market Coverage. [WAV 332KB] [AIF 332KB]
But Lonsky cautioned that the Fed still could change its mind given its history of doing just that in 1984, 1989 and 1994.
"I think what the Fed governors will say is there is some evidence that the economy slowed, but we're not all that certain as to whether that slowdown will persist. And if so, perhaps they're all finished with hiking interest rates," Lonsky said.
Other analysts agreed that this report should help keep a cap on interest rates at the June meeting.
"We don't think the Fed will raise rates in June," Saumil Parikh, economist at investment house UBS Warburg, told Reuters. "We've had a whole bunch of weak data, and there is no emergency for the Fed to move now. Everything points to it taking a pause."
Given the mixed performance of wholesale prices compared with forecasts, the consumer prices report, due for release Wednesday, could be more important.
A survey by Briefing.com forecasts that consumer prices rose 0.2 percent in May, up from a 0.1 percent increase in April. The core CPI is expected to be up 0.2 percent, the same as the April increase. 
-- Reuters contributed to this report
|
|
|
|
|
|
Department of Labor
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
