Experts Split On Which Way Fed Will Jump

Economy

When U.S. central bankers gather Tuesday to talk about interest rates, they’re likely to break a 19-month streak and raise the overnight bank lending rate by a quarter point, many economists say.

The vote isn’t expected to be unanimous, however, and a minority view among analysts is that Federal Reserve Chairman Alan Greenspan will use his considerable influence to keep the Federal Open Market Committee from increasing borrowing costs for businesses and consumers.

Whatever happens, Fed watchers say Tuesday’s meeting is likely to be one of the central bank’s more contentious gatherings in recent memory. “There may be a few fist fights, hair pulling, and name calling,” quipped Scott Brown, senior economist at Raymond James & Associates in St. Petersburg, Florida.

The fed funds rate has stood at 5.25 percent since Jan. 31, when it was trimmed by a quarter point. The last time it was increased came on Feb. 1, 1995 when the rate was boosted a half point to 6 percent.

Among the conflicting signals reported this week:

The Fed said industrial production rose 0.5 percent in August, up from an anemic 0.1 percent growth in July.

The U.S. trade deficit in goods and services shot up to $11.682 billion in July - a 42.6 percent gain - as imports of oil and Chinese toys increased while exports fell.

Construction of single-family homes and apartments surged 4.5 percent in August, while new claims for unemployment insurance dropped last week by 2,000.