Producers Price Rise Doesn't Preclude Interest-Rate Cut

By John S. McClenahen May 15, probably about 2 p.m. Eastern time, Chairman Alan Greenspan will announce whether or not the Federal Open Market Committee (FOMC) has lowered U.S. short-term interest rates for the fifth time this year. Gerald D. Cohen, a senior economist at Merrill Lynch & Co., New York, expects the FOMC to reduce the influential federal funds rate by 50 basis points to 4%. Inflation, says Cohen, "is not a problem and should be off the Fed's radar screen." The most recent producer price figures from the U.S. Labor Dept.'s Bureau of Labor Statistics lend credence to Cohen's view. Although the price index for finished goods advanced 0.3% in April, and predictably was led by a rise in the cost of energy, it was in line with the consensus forecast and way below the 1.1% increase of this past January. What's more, the closely watched "core" producer price index -- which excludes volatile energy and food prices -- rose only 1.6% between April 2000 and April 2001.

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