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Will The Fed Cut U.S. Interest Rates If Jobless Claims Rise?

By John S. McClenahen It is more than a month before the next scheduled meeting of the interest-rate-setting Federal Open Market Committee on Oct. 2. But data on U.S. initial unemployment claims for the week ending Aug. 18, up 8,000 from the previous week to 393,000, have Maury Harris speculating about the Fed's next move. "This level of claims still points to declining employment and rising unemployment. We need to see claims edge down further for the Fed to be able to stay on hold at the October meeting," says Harris, chief U.S. economist for New York-based UBS Warburg, a unit of Switzerland's UBS AG. The influential federal funds rate is now at 3.5%. The Fed is likely to be looking at factors other than unemployment when it makes its interest-rate decision. "In particular, for the Fed to pass at the next meeting, we probably also need to see more evidence that the tax rebates are boosting consumption and a fading of the drag from inventories is helping manufacturing," says Harris.

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