Fed ‘in a box’ over economy

WASHINGTON – Wholesale prices barreled ahead while housing and industrial activity faltered – a blend of high-costs and slow growth that ensures the Federal Reserve’s most likely move on interest rates next week will be no move whatsoever.

Chairman Ben Bernanke and his colleagues have made increasingly clear they’re not inclined to cut interest rates further for fear of aggravating inflation. On the other hand, boosting rates too soon to fend off inflation would hurt an economy already battered by housing, credit and financial woes.

“The Fed is in a box,” Ken Mayland, president of ClearView Economics, said after the latest batch of economic barometers were released Tuesday. That’s why many economists are predicting the Fed will hold rates steady at 2 percent, a four-year low, at the June 24-25 session.

The Labor Department’s Producer Price Index, which measures the costs of goods before they reach store shelves, leaped 1.4 percent in May, the biggest increase in six months. Galloping energy and food prices, which are especially squeezing business profits, figured prominently in the index’s pickup.

The economy’s problems and high prices for fuel and raw materials are taking a toll on manufacturers and others.

The Federal Reserve reported that industrial production fell 0.2 percent in May, the second straight monthly decline. The number of new housing projects started in May fell 3.3 percent to a 975,000 pace – the lowest in 17 years – as builders pulled back further. Builders are smarting as unsold homes as well as foreclosed homes pile up, adding to already swollen supply.