Wednesday, February 02, 2000
Price hikes called danger
Raw materials cited as concern
The Associated Press
NEW YORK — A manufacturing group warned Tuesday that “prices are rising to levels of concern” as the nation's industrial economy grew in January for a 12th straight month.
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FED WATCH
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The Federal Open Market Committee will finish its two-day meeting on interest rates this afternoon.
Most economists are expecting the Fed to boost the target for its federal funds rate by a quarter of a percentage point, to 5.75 percent. But some experts say there's an outside chance of a half-point increase in light of recent strong economic reports. The federal funds rate is what banks charge each other for overnight loans — a key short-term rate.
The Fed is expected to announce its decision about 2:15 p.m. today.
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The inflation warning came as Federal Reserve policy makers began a two-day meeting in Washington that is expected to result in the fourth increase in interest rates since June.
Tuesday's figures from the National Association of Purchasing Management confirmed that the economic expansion — already the longest in American history — is continuing.
But a worrying jump in the prices of raw materials — to the highest reading in almost five years — gives the Fed even more cause to raise interest rates to cool the economy and hold inflation in check.
“The manufacturing sector appears to have momentum, but prices are rising to levels of concern, particularly with a new round of petroleum price increases,” said Norbert J. Ore, head of the group's business survey committee.
The purchasing executives' group said its manufacturing index, based on a national survey of executives who buy raw materials and other supplies for industry, registered 56.3 percent in January, down slightly from a revised 56.8 percent in December but a bit stronger than the 56 percent analysts had expected. A reading above 50 percent indicates growth.
The index is watched closely because it is the first nation al reading for January on U.S. industrial performance, a key sector of the economy.
The index component measuring prices factories pay for raw materials surged in January to 72.6 percent from a revised 68.3 percent the month before.
That reading was the highest since April 1995, when the price index hit 74.5 percent, economists for the association said. The group said 17 of 20 industries reported higher prices.
David Orr, chief economist at First Union Corp. in Charlotte, N.C., characterized the high price index reading as “the danger zone,” noting: “The last two times it was above 70 percent — in 1994-95 and 1987-88 — correlated with aggressive Fed tightening” of credit.
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Price hikes called danger
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