|
Fed rate hike expected
|
 |
September 3, 1996: 10:08 a.m. ET
Experts say Fed will raise rates to slow economy and curb inflation
|
NEW YORK (CNNfn) -- Rising oil prices and signs of a strong U.S. economy could combine to convince the U.S. Federal Reserve to raise interest rates in a preemptive strike on inflation later this month, senior economists said Tuesday.
Fears of higher rates have sparked several stock market tumbles this summer and stomped out much of the Bull market's life, as Wall Street pundits and investors debated whether the central bank should raise rates. Some argued the economy is inflation-free, while others maintained that strong demand for goods and services needed to be curbed before inflation set in. So far, no rate change has occurred.
But now, on the heels of a string of strong economic signals, many economists believe the central bank's policy makers are leaning toward a rate hike. Published reports out early Tuesday suggested that only an economic slowdown would be enough to prevent the Fed's inflation hawks from boosting rates.
"I think the Fed should be booking rates up," Bob McKee, an economist with Independent Strategy in London, told CNNfn. "It's about time."
According to the Wall Street Journal, key players inside the central bank already plan to raise rates as early as their next policy meeting on Sept. 24. Such a move might stave off inflation, but it could also become a factor in the presidential campaign between President Bill Clinton and Republican challenger Bob Dole. Clinton has used the strong U.S. economy to blunt criticism.
The Fed traditionally has not changed interest rates in the months leading up to a presidential election. Indeed, opinions are still divided over when the central bank will make its decision.
McKee and other market watchers said they expect the Fed to boost its core rates from 5.25 percent to 5.75 percent. They are even more adamant about higher rates in the wake of a U.S. missile attack on Iraq. (WAV208K)
The attack was launched upon Iraqi air defense systems in response to an Iraqi offensive against Kurds in Northern Iraq, a zone the U.S. has pledged to protect.
Investors were immediately concerned that events could jeopardize the status of a United Nations deal that permitted Iraq to sell oil for the first time since the Persian Gulf War in exchange for food and humanitarian aid. In anticipation that the deal will collapse and shrink supplies, oil prices soared in early trading Tuesday and world financial markets tumbled. The price of a barrel of crude oil hit a six-year high in London before easing slightly.
U.S. stock markets were also expected suffer throughout day and, with a barrage of key reports due out in the next few days, the week.
"Inescapably, you're going to see lower prices," said Lou Ehrenkrantz, president of Ehrenkrantz King Nussbaum in New York. "I think the market is using this to accelerate what it already started, a correction… But I don't think you're looking at the Big One. This is not a cause to jump out of a window. Markets do go down."
|
|
|
|
|
 |
|
