More hints on US interest rates

There were more hints on the direction of US interest rates yesterday, although probably less clear than from the day before.

Reuters reported that wholesale inventories fell unexpectedly by 0.1 percent in July while sales rose 0.5 percent, boosted by a 7.6 percent jump in sales of petroleum products. The report, however, questioned whether the dip in inventories means demand is outstripping wholesalers' ability to stock supplies or whether it indicates that wholesalers have doubts about future demand.

In the same report, first-time claims for unemployment insurance benefits were reported to have dropped to 319,000 last week from 320,000 the prior week. This figure included about 10,000 disaster-related applications for aid from hurricane-battered Alabama, Louisiana and Mississippi. The four-week moving average of claims rose for the fourth straight week, climbing to 318,500 from 316,500.

Yesterday also saw the Federal Reserve report that consumer credit increased at an annual rate of 2.5 percent in July. This is slower than the 3.8 percent pace of the second quarter

San Francisco Fed President Janet Yellen's speech yesterday also did not leave a clear message on the direction of monetary policy in the wake of Hurricane Katrina. Nevertheless, William Polley concluded from it that "[m]ore rate hikes are necessary". Similarly, Mark Thoma interprets the speech as "expressing more concern over the potential for inflation than the potential for economic slack".

Unlike the previous day, yesterday saw little in the form of changes in monetary policy in other parts of the world.

The Bank of Japan kept its stimulative monetary policy unchanged even as it said that Japan's economy continues to recover and projected consumer prices to be either zero or show a slight increase towards the end of 2005. Japan's core private-sector machinery orders did fall by a seasonally-adjusted 4.3 percent in July from June, although the fall was less than expected, and actually represents a 10 percent year-on-year increase.

Similarly, the Bank of Korea kept interest rates unchanged, but Governor Park Seung reportedly told reporters that "we will seriously discuss a rate adjustment next month". This is despite the National Statistics Office reporting that its consumer confidence index fell to 94.8 in August.

And, as widely expected, the Bank of England also left interest rates unchanged.