The Federal Reserve is hardly living up to its billing as a ferocious hunter willing to go to any lengths to hunt down the elusive quarry of inflation. Members of the central bank have gone into summer with the aggressiveness of a kid with a pop gun. After a tiny quarter-point boost in interest rates, the Fed patted itself on the back in late June and said, in effect, all is well. New inflation tests occur Wednesday and Thursday, with reports on the June producer price index and consumer price index, respectively. Economist Sung Won Sohn is looking for a rise of 0.2 percent in PPI, which measures wholesale inflation, and an uptick of 0.1 percent in CPI. When food and energy prices are excluded, he said, both barometers will be flat for the month. “At the consumer level, we are starting to see rising energy prices affect some other costs,” said Sohn, of Wells Fargo & Co. in Minneapolis. “But the dilemma for the Fed is, how can you raise rates when there are no specific numbers pointing to inflation?” Sohn said such indicators won’t appear any sooner than next month, perhaps ahead of policymakers’ next meeting Aug. 24.
RETAIL SALES
STILL CHUGGING ALONG
Members of the Fed will be scrutinizing Wednesday’s report on June retail sales for signs that consumers are scaling back on a white-hot spending spree. Economist Tim O’Neill is looking for a modest advance of 0.2 percent, nothing like the 1 percent gain a month earlier. “There was a slight deceleration in sales of cars and light trucks last month, but that was after a very strong May,” said O’Neill, of Chicago’s Harris Bank and its parent, Bank of Montreal. “Overall, consumers are showing no signs of spending fatigue,” he said. “There is nothing on the horizon to suggest any kind of slowdown.”
PROFIT REPORTS
GM REVVING UP
Heading up second-quarter corporate profit reports will be the auto industry, as Ford Motor Co. reports earnings Wednesday. While Ford may show only a small advance, analysts are looking for General Motors Corp., which reports July 20, to blow away year-earlier results. GM is expected to roll out results roughly five times better than its 47 cents a share in last year’s quarter– perhaps topping $2.65. The 1998 pratfall was blamed on strikes that cost GM $1.2 billion, or $1.79 a share, in lost profits.
STOCK MARKET
STRETCHED THIN
With prices stretched to the limit, some Wall Street analysts are saying the stock market has nowhere to go, even if corporate results exceed expectations. Economist A. Gary Shilling says Wall Street is very nervous about further action on monetary policy, “because the Fed usually doesn’t stop raising interest rates unless it is confronted by some outside event.” But Shilling, who heads an investment firm in Springfield, N.J., said: “The Fed doesn’t want to do anything to discourage the American consumer. Central bankers know that sales in this country account for 20 percent of the world’s goods.”
