Possibility of a Fed Easing Debated; Drop in Prices Opens Door for Lower Interest Rates

By Dawson, Stella | American Banker, July 22, 1991 | Go to article overview
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Possibility of a Fed Easing Debated; Drop in Prices Opens Door for Lower Interest Rates


Dawson, Stella, American Banker


Possibility of a Fed Easing Debated

WASHINGTON - June's retreat of wholesale prices and decline in retail sales leave room for lower interest rates if the nascent recovery sputters, economic analysts said.

"This pushes the evidence a little bit more toward a weak recovery and the possibility that the Fed will have to ease credit some more," said Robert McGee, economist at Tokai Bank, in the wake of the release of the latest economic indicators.

In a sign of slow demand, the Labor Department, said the producer price index fell by an unexpected 0.3% last month.

The drop brought the wholesale inflation rate to minus 1.5% on an annualized basis thus far this year, versus an 8.2% spurt during the Gulf crisis in the 1990 second half.

Dip in Retail Sales

But fears that the economy will falter as it emerges from recession were fueled by the U.S. Commerce Department's report that June retail sales fell 0.2%. Analysts had expected a 0.5% June gain in sales. May sales were revised down to a 0.8% gain from the previously reported 1% increase.

The U.S. Chamber of Commerce took a pessimistic reading of the reports. "The economy is not undergoing a sustainable recovery," said its economist, Lawrence Hunter. "Falling consumer spending could create a double-dip recession.

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