Consumer Prices Rose Modestly in July --- With Home-Building Drop, Data Suggest That Fed Will Hold Rates Steady
WASHINGTON -- Consumer prices rose modestly last month and construction of new homes fell, further suggesting that Federal Reserve policy makers won't raise interest rates at their meeting next week.</br></br>The Labor Department said the consumer-price index rose a seasonally adjusted 0.2% in July, compared with a sharper increase of 0.6% the previous month. Steady prices in the energy sector were responsible for the moderation. Energy prices rose just 0.1% last month, compared with a 5.6% jump in June.</br></br>Meanwhile, housing starts fell for the third month in a row, dropping 3.3% in July, compared with a 1.8% drop in June, to a seasonally adjusted annual rate of 1.51 million, the Commerce Department said in a separate report. The figures suggest a sustained cooling in the market for new homes.</br></br>Yesterday's reports provided the last important data before the Fed's rate-setting meeting, scheduled to begin on Tuesday. With the mild inflation picture and the home-building slowdown, market expectations that the Fed will leave its target for the federal-funds rate unchanged look like a safe bet. (The federal-funds rate governs overnight loans between banks.)</br></br>"The housing-start number will reinforce the view that we're starting to head into a slower period of growth in the economy," said Mike Moran, chief economist at Daiwa Securities America in New York. "I would view it as the type of news that will keep the Fed on the sidelines."