August 08, 2006	Tuesday	Rajab 12, 1427

WASHINGTON, Aug 7: The Federal Reserve is set to bring its longest run of interest rate hikes in recent history to an end as the US economy hits the brakes, economists said on Monday. The central bank’s federal open market committee (FOMC) meets on Tuesday to decide whether to continue with 17 straight hikes that have pushed the headline US interest rate up to 5.25 per cent.

The betting on Wall Street was that the Fed would decide that enough is enough, having brought the federal funds rate up from a historic low of 1.0 per cent with an unbroken run of hikes since June 2004.

“The time is ripe for the Fed to pull the plug on this tenacious two-year-old tightening cycle,” Merrill Lynch economist David Rosenberg said.

He added: “We are amazed at the number of folks out there who still feel the need for the Fed to raise rates further because of elevated inflation pressures.

“There is simply nothing the Fed can do about the current inflation backdrop right now. Everything the Fed does now will exert its ultimate impact in the summer of 2007, when we may very well be dusting off the deflation books once again.”

There are plenty of signs of inflation in the US economy, as sky-high energy prices stoke price rises in the industrial and consumer pipelines.

But Fed chairman Ben Bernanke has stressed that he believes cooling growth should curb inflation in the coming months, despite the high energy prices and budding wage pressures.

In the last big piece of economic news before the FOMC session, the government said on Friday that US employers added just 113,000 new jobs in July, while the jobless rate ticked up to 4.8 per cent from 4.6 per cent in June.

It was the fourth straight month that the Labour Department’s “non-farm payrolls” report had proven tepid. Most worrying for an economy driven by consumer spending, retailers are proving reluctant to take on new staff.

Friday’s report came after the government reported late last month that second-quarter growth slipped to 2.5 per cent, after gross domestic product (GDP) expanded at a red-hot pace of 5.6 per cent in the first three months.“With retail and construction employment both trending down, it’s clear that high energy prices and a cooling housing market are moderating economic growth,” said David Huether, chief economist of the National Association of Manufacturers.

“With this in mind, the Federal Reserve would be well advised to hold interest rates at their present levels,” he said.—AFP