Using the markets as a cue for how the Federal Reserve’s Open Market Committee is going to handle interest rates is like playing cards without a full deck. Tim O’Neill, however, says you don’t even need to look at the cards to determine what the Fed’s policymaking panel is going to do–at least for the rest of this year. O’Neill, chief economist for the Bank of Montreal and Chicago’s Harris Bank, says he knows exactly what the committee is going to do when it meets next week: Nothing. “The global impact of the East Asian crisis is beginning to emerge,” O’Neill said. That, combined with the expected appreciation of the dollar against the Japanese yen, almost certainly will ameliorate any Fed leanings to raise rates, he added. “Weaker demand and (weaker) currencies in East Asia are depressing net exports and pushing down inflation through lower commodity and import prices,” O’Neill noted. “However the bulk of the impact is yet to come.” Federal Reserve Gov. Edward Kelley seems to agree. At a conference sponsored by Middle Tennessee State University and NationsBank, Kelley said the Asia-induced slowdown is hitting at just the right time. In fact, he said, that its impact on the U.S. is “going to turn out to be just right.”
INDICATORS
NO SIGNS FROM PRICES
This is the last week before the Federal Open Market Committee’s meeting May 19. And as is occasionally the case, two critical numbers the Fed examines will be unveiled. On Wednesday, the producer price index will be announced, followed on Thursday by the always important consumer price index. Most economists, according to various surveys taken last week, said they expect the PPI core rate to be unchanged, while the CPI core rate will rise just 0.2 percent, which equates into an annual inflation rate of 2.4 percent. “Inflation at the core has been running a little under 2.5 percent, and it will take evidence of an acceleration in that number to get the Fed to move,” said James Annable, chief economist for First Chicago NBD Corp. And Annable says the kind of acceleration that the Fed would react to won’t come from the goods part of the economy; instead, it will be caused by the tightness in the labor markets. Friday’s report of a 4.3 percent unemployment rate could provide a warning of problems to come, if anyone believed the 0.4 percentage-point drop in unemployment was real, according to the First Chicago economist. The only problem is the number defies reason, because the report said the size of the labor force shrank by more than 250,000 people. “This is really an aberrant number, a statistical artifact, caused by Easter,” he said.
EARNINGS
RETAIL REPORTS
The earnings front could become interesting for those who follow this part of the economy. This week, it’s the nation’s retailers who are expected to weigh in. On Monday, St. Louis-based May Department Stores Inc. is to get the ball rolling with its earning report. On Tuesday, the nation’s largest retailer, Bentonville, Ark.-based Wal-Mart Stores Inc., and Seattle-based Nordstrom Inc. are expected to weigh in. On Wednesday, it’s two department-store chains, Little Rock, Ark.-based Dillard Inc. and Cincinnati-based Federated Department Stores Inc., that are to move center stage. That’s also the day that Moline, Ill.-based farm equipment manufacturer Deere & Co. is expected to report its earnings. On Thursday, it’s clothing firms’ turn with San Francisco-based Gap Inc. and Dodgeville, Wis.-based Lands’ End Inc. expected to announce.
