Interest rates likely to stay low
By Carlos Torres and Kristy McKeaney
Bloomberg News Service
WASHINGTON — Federal Reserve policy makers are likely to keep interest rates low to hold consumers in a spending mood during the holiday shopping season.
Low rates have enabled retailers Best Buy Co. and Circuit City Stores Inc. to offer no-interest financing in addition to discounting merchandise. That will probably hold up consumer spending, which accounts for two-thirds of the economy.
"Consumers are still spending, and discounting — as well as low interest rates, — are major factors why," said Adrienne Warren, a senior economist at Scotia Capital Markets in Toronto.
Rates are expected to stay low at least until 2003. Central bankers meet tomorrow amid expectations they will keep their target for the overnight bank lending rate at 1.25 percent, the lowest since 1961.
Discounting and low-rate loans are likely to keep prices from rising.
A Labor Department report on Friday is expected to show that producer prices were unchanged in November, after rising 1.1 percent a month earlier. Excluding food and energy, the so-called core rate also was unchanged, according to economists surveyed.
"Producer inflation remains virtually nonexistent outside of the energy complex," said Steve Wood, chief economist at FinancialOxygen Inc., a Walnut Creek, Calif.-based provider of financial services to banks.
Prices on imports also are expected to be tame. That price index, due from the Labor Department on Thursday, probably fell 0.3 percent in November, the first drop in five months, after rising 0.1 percent in October.
November retail sales probably rose 0.4 percent, according to the median estimate of 41 forecasts in a Bloomberg News survey. The report, due from the Commerce Department on Thursday, is expected to show improving sales at car dealerships.
Best Buy and Circuit City, the top two U.S. electronics retailers, said last week that third-quarter sales increased as shoppers bought discounted CDs and DVDs and took advantage of no-interest financing to buy more expensive items.
