Magazine article American Banker

Rate Uncertainty Could Damage Business

Magazine article American Banker

Rate Uncertainty Could Damage Business

Article excerpt

The stunningly strong employment report that rattled windows on Wall Street 10 days ago could trigger aftershocks into the second half of the year if interest rates end up staying too high.

Many economists and analysts assume the report, with its explosive tally of 705,000 new jobs in February, was an aberration. Later data, however, have offered a mixed view of the economic situation.

Last week, for instance, both the Producer Price Index and consumer price index for February reflected a continued trend of moderate to flat inflation. But the manufacturing sector rebounded from a January low, and consumer sentiment improved.

The uncertainty stirred by the jobs report and subsequent data has created anxiety in the bond market, and it could cause the Federal Reserve to postpone further interest rate cuts for several months, which could in turn dampen business conditions later in the year.

"It's doubtful now that the Fed will ease this month," said Stuart G. Hoffman, economist at PNC Bank Corp., Pittsburgh. "They will probably wait until May, or perhaps the summer, when they have further data to clarify the economic picture."

"The jobs report wasn't a clean report, but it's going to take time to uncover just how much noise there was, weather-related and otherwise," said Anthony Karydakis, senior financial economist at First National Bank of Chicago, a unit of First Chicago NBD Corp.

The report caused stock and bond prices to plunge and interest rates to rise on the sudden expectation of strong economic growth. …

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