THE FED Rate rise draws nearer, economists say

The timing will depend on employment and inflation.
WASHINGTON (AP) -- The clock now is ticking to when, not if, the Federal Reserve will begin to nudge up ultralow interest rates.
The view of a growing number of economists that the central bank's first rate increase in more than four years will come this summer solidified Tuesday as Federal Reserve Chairman Alan Greenspan and his colleagues decided to keep a key short-term interest rate at a 46-year low.
In doing so, however, the Fair Market Policy Committee dropped a promise to be "patient" before it starts raising rates.
"Step by step we are getting closer to higher interest rates," said Carl Tannenbaum, chief economist at LaSalle Bank.
Tannenbaum and other economists believe Fed policy-makers will raise rates at the Aug. 10 meeting. Some, however, believe rates could start going up as early as the Fed's next meeting, June 29-30. A few, however, don't foresee higher rates until 2005.
Factors
The timing of any increase will hinge on what economic data, especially reports on the nation's employment climate and inflation, that come out in the next few months say about the economy, analysts said.
Were the data to come in on the strong side, odds of a June rate increase would rise; if the reports were to depict weaker-than-expected activity, an increase might not come until after November's presidential election or even later, analysts said.
The Fed's main tool for influencing economic activity is the federal funds rate. The funds rate, the interest that banks charge each other on overnight loans, has been at the superlow level of 1 percent since last June.
As a result, commercial banks' prime lending rate for many short-term consumer and business loans has stayed at 4 percent, the lowest level in more than four decades.