As the debate about the health of the nation's economy continues to heat up, investors will have a chance in the coming week to hear the U.S. central bank's opinion about how things stand. On Tuesday, the Federal Open Market Committee , the policymaking arm of the Federal Reserve , will hold a one-day meeting. With the economy not recovering as quickly as many had expected, speculation is growing that Alan Greenspan & Company could cut the fed-funds rate again this year. Fed-funds futures are pricing in a 28% probability of a 25-basis-point cut on Tuesday. But most dealers think the FOMC will leave rates unchanged at 1.75%, their lowest level in 40 years.
With a cut unlikely on Tuesday, the real story of the FOMC meeting will probably be what the central bankers say about the economy in the statement that will be released after the gathering concludes. "If the FOMC doesn't change its outlook, it will be a disappointment to the stock market because it has its heart set on an ease now," said Paul Kasriel, director of economic research at Northern Trust. And that's exactly what some economists think the Fed will do. "I don't think they'll ease, but I think they'll change the balance of risk toward weakness," said Jim O'Sullivan, U.S. economist at UBS Warburg. In the last two weeks, several economic indicators have disappointed Wall Street, including the latest gross domestic product report, data on durable goods orders and some consumer confidence measures. However, retail sales , one of the biggest of several reports due out in the coming week, are expected to show an increase. "The expectation is we'll get a strong increase in retail sales in July in the report on Tuesday, in time for the FOMC meeting," Kasriel said. Analysts are looking for July retail sales to rise 1.2%. Looking ahead, O'Sullivan believes the fed-funds rate will be left alone for the remainder of this year, but Kasriel and others aren't so sure. "The Fed will ease if it fears a negative wealth effect coming from the stock market," Kasriel said. "If the economy is not growing fast enough to hold down the unemployment going into the November election, the Fed would ease."
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Other reports to be released this week include industrial production , business inventories , the consumer price index , housing starts, the University of Michigan's consumer sentiment index and the Philadelphia Fed survey for August. In addition to the actual Fed meeting, the Philadelphia survey and the release of the minutes from the June FOMC meeting should provide more clues as to the Fed's view on the economy. Corporate earnings will continue to trickle in, and Wednesday is the deadline for many chief executives and chief financial officers of large U.S.-based companies to attest to the accuracy of their financial statements. The requirement covers companies whose revenue totaled at least $1.2 billion in their most recent fiscal year. The Aug. 14 deadline applies to companies that use the calendar year for reporting their results. Companies with a fiscal year not matching the calendar year will have more time to certify their results. "It's an important date, but I tend to think that these economic reports will get most of the headlines," said Mike Moran, chief economist for Daiwa Securities America. "I'd be surprised if there was a sudden rally in the stock market on this Aug. 14 deadline." Among the companies schedule to release quarterly earnings are Applied Materials ( AMAT), Dell ( DELL), Nvidia ( NVDA), Deere ( DE) and several big retailers, including Wal-Mart ( WMT), Target ( TGT) and J.C. Penney ( JCP).