Slowing economy lifts stocks

0 Comments | Deseret News (Salt Lake City), Aug 17, 2006 | by Associated Press

WASHINGTON -- A relatively tame consumer price index was not the only positive news to push stock prices up Wednesday.

Two other reports added to the view that a slowing economy could help to hold inflation in check.

The Federal Reserve reported that industrial production rose by 0.4 percent in July, just half the June gain, as manufacturing output slowed dramatically, reflecting the continued woes of U.S. automakers.

And the Commerce Department said new home construction dropped by 2.5 percent in July. It was the fifth decline in the past six months and pushed construction to a seasonally adjusted annual rate of 1.782 million units, the slowest pace since November 2004.

Building permits, considered a good barometer of future activity, dropped by a sizable 6.5 percent, a further sign that the five-year housing boom is now over.

Wall Street saw the combination of lower core inflation and a slowing economy as a sign that the Federal Reserve will not raise rates for an 18th time when the Fed meets again on Sept. 20.

Richard Fisher, president of the Dallas Federal Reserve bank, said Wednesday that the Fed's next move remains an open question.

"If anybody tells you with absolute conviction that the Fed is done raising interest rates or with equal conviction that they have only paused and will raise rates again starting in September or October, remind yourself that at best -- and I am being generous here -- they are only guessing," Fisher said in a speech to a Dallas business group.

Fisher said the Fed "will not tolerate inflation. But that doesn't mean we need to take a sledgehammer to the economy."

The Fed last week left a key interest rate unchanged, breaking a two-year string of uninterrupted rate hikes and raising hopes among investors that the central bank is about to end its credit tightening.