Fed Still Expected To Cut Short-Term Interest Rates

Jan. 13, 2005
b>By John S. McClenahen Despite larger-than-expected January increases in the U.S. consumer price index -- overall the CPI was up 0.6% and the CPI "core," which excludes food and energy, rose 0.3% -- the Federal Open Market Committee remains likely to ...

b>By John S. McClenahen Despite larger-than-expected January increases in the U.S. consumer price index -- overall the CPI was up 0.6% and the CPI "core," which excludes food and energy, rose 0.3% -- the Federal Open Market Committee remains likely to cut short-term interest rates at its Mar. 20 meeting. The CPI is one of the three most closely watched measures of U.S. inflation. These CPI data "should not dissuade the Fed from cutting the [federal] funds rate by 50 basis points," says Gerald D. Cohen, senior economist at Merrill Lynch & Co., New York. Economic analyst Maury Harris at UBS Warburg LLC, also in New York, agrees. "We still expect a 50-basis-point cut, based on inflation being somewhat of a lagging indicator and [February's] coincident business indicators likely to be weak." Indeed, adds Cohen, "With growth slowing, we expect inflation to head lower in coming quarters."

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