A Fed-engineered increase in short-term interest rates is out of the question for now, regardless of whether policymakers switched last week from a pro-tightening to a neutral stance.

The most recent batch of economic data show weakness in employment growth, manufacturing activity, and home sales -- a very difficult environment in which to justify a rate hike.

Except in the brief period in the 1980s when the economy suffered from a combination of slow growth and high inflation, the Federal Reserve "has never in history tightened in a weak economy," said Alan Sinai. president of Economic Advisers Inc., a unit of Lehman Brothers.

And June producer and consumer price data due out this week should show low inflation and reinforce this no-tightening view.

Economists predicted that the producer price index, due out Tuesday. and the consumer price index. due out Wednesday. were flat to slightly up.

Lower Tobacco Prices

"With the decline in tobacco prices, the chances of a big rise" in the producer price index and the consumer price index "are between slim and none," said Hugh Johnson, chief market strategist for First Albany Corp.

Richard Peterson, chief economist for Continental Bank Corp., noted that the House-Senate conference on President Clinton's deficit-reduction legislation begins this week -- "not the time to make a move on monetary policy."

The Fed on Friday released minutes of the Federal Open Market Committee meeting on May 18. The minutes confirmed that the central bankers, on a 10-to-2 vote, adopted a pro-tightening tilt at that meeting. The dissents were from Wayne Angell, who favored an immediate tightening, and Edward G. Boehne, president of the Federal Reserve Bank of Philadelphia, who favored a neutral policy.

The minutes of last week's FOMC meeting will not be released for six weeks.

Dismal Jobs Data

Some economists think that the meager 13,000 increase in June employment convinced the Fed to switch to a neutral stance.

"It was an inflation scare that was unfounded," said Steve Ricchiuto, an economist at Barclays de Zoete Wedd. "The one-month change was adopted only to achieve credibility."

Under a pro-tightening policy, Fed Chairman Alan Greenspan has authority raise the target rate for federal funds by as much as a half a point from the current 3%. If policy was switched to neutral, he would be required to consult by phone with the other FOMC members before acting to tighten or ease credit.

Gary Schlossberg, senior economist for Wells Fargo & Co., doubts the Fed switched. "The Fed would not want to give the impression of flip-flopping," he said.

A sharp rise in gold and other commodity prices last week bolstered the argument of those who believe the Fed should stay on inflation alert.

Edward Yardeni, economist for C.J. Lawrence Inc., said he thinks the Fed will tighten if the price of gold rises above $400 and soybean and grain prices continue to rise. Gold was quoted at $394.50 an ounce on Friday afternoon.

Half-Point Rise Seen

Mr. Yardeni -- among the best rate forecasters in the Wall Street Journal's most recent economic survey -- thinks short-term rates will be a half point higher by the end of summer.

But John Lonski, senior economist for Moody's Investors Service Inc., said the rise in commodity prices relates largely to the temporary effects of midwestern flooding on crop production, rather than long-term inflationary trends.

"Even the hawks on the Fed realize that a tightening is not going to lower the level of the Mississippi River," he quipped.

The rise in gold prices is more troubling, he said, and may reflect investor uneasiness that the Fed and other central banks have the resolve to maintain a strong anti-inflation stand amid continuing economic weakness.

Mr. Sinai noted that much of the rise in gold prices relates to special factors, including intense buying by China and some large investors.

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