Fed move could hurt economy

The week ahead

November 05, 1990|By Chicago Tribune

The Federal Reserve Board remains on a knife's edge, as economists offer conflicting views about which is the greater danger, inflation or recession. Any move by the Fed could be dangerous, but a lack of movement also has its costs. Last week, the primary worry was recession, as a series of reports showed the manufacturing sector staggering, the job market constricting and construction activity declining. This week, the emphasis shifts to inflation. The Labor Department weighs in Friday with its producer price index, reflecting wholesale prices for October. Since Iraq's invasion of Kuwait three months ago, wholesale inflation has skyrocketed.

FED WATCHING: Despite inflation worries, some analysts believe the Fed will nudge interest rates another tiny step lower. Last week, the key federal funds rate, at which banks lend to each other, slipped a quarter-percentage point, to 7.75 percent. Donald Straszheim, chief economist for Merrill Lynch & Co., sees this rate falling to 6.5 percent by the middle of 1991, as the Fed wrestles with recession anxieties.

NEXT UP: Tomorrow, the Labor Department reports third-quarter productivity, and the National Association of Realtors reports the quarter's sales of existing homes state-by-state.

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