Federal Reserve policymakers won't hold their next session on interest rates for another two weeks, but observers are scanning public statements meanwhile for hints about their leanings.
Market expectations have been growing that the central bank will raise rates on June 30 to head off inflationary threats from the fast-growing economy. Investors, especially in bank and financial stocks, have grown wary.
Signals about a possible rate increase may be sent this week by Fed Chairman Alan Greenspan, and several other members of the Fed's open market committee have recently offered remarks about what may lie ahead.
Last Thursday, Fed Governor Roger W. Ferguson Jr. noted a "sharp rebound in world oil prices and a surge in health insurance costs," along with the tight job market and the economy's overall rapid pace of expansion.
Under these circumstances, "we might be in some jeopardy of setting the stage for an upturn in inflation," he told the East Hanover, N.J., Chamber of Commerce.
In part, Mr. Ferguson was referring to a startling 0.8% April jump in the consumer price index. The stock and bond markets have been unsettled since that report was released May 14.
Inflation has since been a hot topic. The latest data came Friday when the government reported that producer prices had risen 0.2% in May. That was down from the 0.5% April gain and may signal that the surge in energy prices has crested. Indeed, gasoline prices slipped 2.7%, the largest decline in five months.
However, the prices of crude goods jumped 5.5%, the biggest gain since December 1996, and prices of crude energy materials surged 11.9%, also the biggest gain in two and a half years.
At the same time, consumer spending, the driving force behind the economy, has apparently not abated. Retail sales in May were up 1% from April, topping most expectations. Sales were strong in all sectors, the Commerce Department said.
The May reading of the CPI will be unveiled Wednesday, and many economists think it will play an important part in the Fed's rate discussions two weeks hence.
Most economists think the May report will not be as dramatic as the previous month's, but several top Fed officials have expressed concern that the April report could be an inflationary bridgehead.
"It's unlikely that the April increase in the consumer price index was an aberration ... there's a low chance that it was a one-time event," cautioned William J. McDonough, president of the Federal Reserve Bank of New York and vice chairman of the open market committee.
"The Fed doesn't want inflation to break out," Mr. McDonough told the Georgia Bankers Association on June 1. "It doesn't want growth at any cost. The Fed cannot allow inflation to take off."
The April inflation reading was labeled "troubling" by J. Alfred Broaddus, president of the Federal Reserve Bank of Richmond, Va., in a June 2 speech to the Washington Association of Money Managers. "A report like this naturally gives one pause."
Others appear to be waiting for more data. "The inflation light is flashing amber, so one wants to be careful coming up to the next intersection," said Edward G. Boehne, president of the Federal Reserve Bank of Philadelphia.
"The next couple of weeks are 'critical' in determining if the inflation risks are contained," he told The Wall Street Journal last Monday. "They don't think the evidence is in yet to make the case that we're seeing an acceleration of inflation."
Fed Governor Edward M. Gramlich may have summed things up before the National Economics Club in Washington on June 3 when he observed: "It's a delicate time for Fed policymakers."
