Fed to Decide on Interest Rates

Wall Street’s primary focus this week will be on the Federal Reserve’s meeting Tuesday.

The Fed is still expected to add to June’s quarter-point rate increase and raise its benchmark short-term rate, the so-called federal funds rate, another quarter of a percentage point, to 1.5%, to keep inflation at bay.

Though Friday’s disappointing July jobs data made a rate increase less of a done deal, analysts think the gray area is the pace of future rate hikes.

“There’s uncertainty about where the Fed will be at the year’s end and whether it will skip a meeting, but as far as [this] week goes, the market expects a quarter-point rise. It would really be a stunner if the Fed didn’t do that,” said John Shin, U.S. economist at Lehman Bros. “The main debate is not about [this] week; it’s about September.”

The uncertainty means Wall Street will be scrutinizing the wording that Fed Chairman Alan Greenspan and his peers use in their post-meeting statement.

In their June 30 meeting statement, when they raised their benchmark rate from a generational low of 1% to 1.25% -- the first increase in four years -- Fed policymakers said they expected future rate hikes to be at a “measured” pace.

“If they keep in the ‘measured’ phrase and they don’t make any significant comments, it could turn out to be, from the markets’ perspective, a bit of a non-event,” Shin added.

The big question is whether the Fed might hint in its statement that it could forestall additional rate increases if economic data worsen.

Many investors are more worried about oil prices than about interest rates.

U.S. crude futures hit historical peaks last week -- rising as high as $44.77 a barrel on Friday before settling at $43.95. That leap near $45 took the price of U.S. crude to its highest in the 21 years that oil futures have been traded on the New York Mercantile Exchange.

Crude oil is a factor in almost every aspect of production and transportation of goods and services, and it affects the profits of almost all companies. As a consequence, stocks have closely mirrored the change in crude oil futures, with the stock market falling when oil futures rise.

“You really can’t make a run if you don’t know where the price of oil is going, and right now it’s at an all-time high,” said Larry Wachtel, senior vice president and market analyst at Wachovia Securities.

“People are talking about $50 oil. I don’t know where it will go, but what I do know is that every dollar up means the consumer isn’t going to be spending money.”

Geopolitical concerns are also likely to weigh on the market. Last week, stocks wobbled when authorities issued the most specific warning yet of a possible Al Qaeda attack. New York, Washington and other money centers were put on “high” alert over the threat, aimed squarely at the heart of the capitalist system.

Earnings will take a back seat to economic and political news as the second-quarter reporting season winds down. But investors will be seeking further clues on the strength of consumer and business demand on Tuesday from computer networker Cisco Systems Inc.’s quarterly earnings and on Thursday with results from Dell Inc. and Wal-Mart Stores Inc.

“Cisco should be reporting solid earnings, given the move by corporate America to increase capital spending,” said Joseph Zock, president of Capital Management Associates.

“Dell is probably one quarter away from a more positive earnings announcement because they tend to be helped by the back-to-school rush,” Zock said. “And Wal-Mart will be important -- it will be a better indication of what the broad-based consumer is doing with his or her money.”

From Reuters

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This Week’s Datebook

Monday

* Second-quarter earnings released by Cablevision Systems Corp., Charter Communications Inc., La-Z-Boy Inc. and Liberty Media Corp.

Tuesday

* Federal Open Market Committee meets to discuss interest rates.

* Labor Department reports on productivity and costs, second quarter.

* Cisco Systems releases fourth-quarter earnings.

* Walt Disney Co. releases third-quarter earnings.

* Second-quarter earnings released by Church & Dwight Co., EchoStar Communications Corp., May Department Stores Co. and Abercrombie & Fitch Co.

Wednesday

* Treasury reports on federal budget.

* Aramark Corp. releases third-quarter earnings.

* News Corp. releases fourth-quarter earnings.

* Federated Department Stores Inc. releases second-quarter earnings.

Thursday

* Commerce Department reports on retail sales for July and business inventories for June.

* Labor Department reports on weekly jobless benefit claims.

* Freddie Mac reports on mortgage rates.

* Agilent Technologies Inc. releases third-quarter earnings.

* Second-quarter earnings released by Wal-Mart, American Eagle Outfitters Inc., Dell, Kohl’s Corp., Payless ShoeSource Inc., Target Corp., Tiffany & Co. and Weight Watchers International Inc.

Friday

* Commerce Department reports on international trade for June

* Labor Department reports on producer price index for July.