Hand Me a Hammer, but Hold the Rate Hike

WEEK BEHIND/WEEK

Homebuilders raised the roof last month, but they may have splintered hopes for lower interest rates.

Mild weather helped builders increase housing starts by 12.2 percent in February to the fastest clip in nearly three years.

But consumers may get caught in the backswing.

With an eye on such indicators, Federal Reserve chairman Alan Greenspan told Congress Thursday that the economy retains a "great deal of vigor" and called the prospects for a continued upswing "quite favorable."

To many economists, that sounded like a prediction of higher rates from the man who has the power to raise them.

The Fed meets tomorrow, and many expect a small rate hike - the first in two years.

"We know from past experience that, although the financial markets may respond immediately [to higher rates], the main effects on inflationary pressures may not be felt until late this year and in 1998," Greenspan said.

Current inflation numbers certainly feel none of that pressure.

Consumer prices rose a modest 0.3 percent in February, the Labor Department said Wednesday.

In other news last week:

* The Republican-controlled House passed a bill allowing workers a choice between cash and time off as compensation for working overtime. President Clinton supports the idea, but said he would veto this bill. Average work weeks have hit an 11-year high of 35 hours.

* The pilots union reached a tentative wage accord with American Airlines, but on Saturday its board adjourned without forwarding the contract proposal to 9,300 members for ratification.

* Breaking ranks with other tobacco companies, Liggett agreed to settle 22 state lawsuits by putting warning labels on cigarettes that state smoking is addictive and can cause cancer.

Looking ahead

Tomorrow, the Fed decides whether to raise interest rates.

Wednesday, the Commerce Department reports on February durable goods orders.

Friday, Commerce issues three numbers: its final estimate of the nation's economic output for the fourth quarter of 1996; an estimate of corporate profits for the fourth quarter; and single-family home sales for February.

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